ECB, rates and BTPs: buy on Italian bonds with consequent thud in rates.
The rates of 10-year BTPs collapsed in today’s session after the diffusion of some rumors, according to which the European Central Bank led by Christine Lagarde it would be preparing to raise rates in the euro area at a slower pace than what the markets discount, and in spite of the hawkish statements made by some of its representatives.
“ECB Is Pondering Slower Hikes After Half Point in February”: is the title of the Bloomberg article that spread the rumors.
Translated: “The ECB is considering slower monetary tightening after the 50 basis point hike in February“.
A sentence that would demonstrate how the Eurotower would in fact be considering acting less aggressively against inflation in the euro area, as anticipated by some economists interviewed by Bloomberg.
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So Bloomberg, based on reports from some ECB officials, “who have asked not to be identifiedas discussions on the matter are confidential.”
“Although the 50 basis point rate hike in February that (Lagarde) indicated (in her Christmas video message) remains probable, support for the prospect of a more limited rate hike, equal to 25 basis points“.
Officials specified that “any slowdown in monetary tightening should not be interpreted as a possible decision by the ECB to become more relaxed in the pursuit of its mandate”. Bloomberg points out, and that “No decision has been made”: and this means that there is still the possibility that Lagarde & Co will proceed to a rate hike of 50 basis points also in the March meeting.
Ma the markets have bet on a possible about-face by the ECB, if only on a less hawkish version of Lagarde:
the euro thus fell against the dollar after the diffusion of the rumors, slipping to an intraday low of $1.0795, after hitting an intraday high of $1.0869.
And, while a 50 basis point squeeze continues to be priced into the upcoming meeting on February 2, the likelihood of a tightening of the same magnitude has decreased in the money marketsat the meeting of the Governing Council of the ECB in March, around 70%.
Plunge in rates on 10-year BTPs, which fell by 15.2 basis points to 3.86%the lowest since Christine Lagarde scared the markets with her hawkish statements on December 15, when interest rates on the main refinancing operations, the marginal lending facility and the central bank deposit facility were raised respectively al 2,50%, al 2,75% e al 2,00%.
The BTP-Bund spread fell to 180 basis points at the end of the session.
Last January 15th, the BTPs had been massacred by sales: that day, the Eurotower had also launched the QT-Quantitative Tightening, as certified by the press release:
“The Governing Council intends to continue reinvesting, in full, the principal payments from maturing securities purchased under the APP (APP, i.e. QE) until the end of February 2023. Thereafter, the APP portfolio will be reduced (therefore the QT will start) at a measured and predictable pace, as the Eurosystem will only partially reinvest the principal repaid on maturing securities. The pace of this reduction will be equal to an average of 15 billion euros per month until the end of the second quarter of 2023 and will then be determined over time”, because of “inflation still too high , as President Lagarde had said.
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In the latest act of the ECB in 2022, the rates of 10-year BTPs ended up exceeding even the ten-year yields of Greek bonds and the BTP-Bund spread shot up over 200.
The reaction of the political world was strong, with some exponents of the Meloni government, to be precise, the Minister of Defence Guido Crosetto and the Minister of Infrastructure Matteo Salvini, who did not spare attacks against Lagarde, fearing the advent of a recession.
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