ECB To Make A Big Step, Apparently
Eurozone government bond yields have reinforced, anticipating today’s ECB statement, where members will address the asset purchase program ending. 10-year bond yields increased 1-2 bps. German benchmark Bund yield grew nearly 1bps to 0.49%, reaching an almost 3-week maximum.
US Treasuries grew as well after FOMC raised the interest rate to a range of 1.75%-2.00%. 2-year U.S. Treasury yields reached the maximum of almost ten years while 10-year bond yields rose to 3-week maximum. This reduced the spread between yields to the 8-year minimum.
The European Central Bank is likely to announce exit from the QE program. But, whether they do it today or at the next meeting in July, remains unknown. Mathias van der Jeugt, KBC rate strategist claimed: "The ECB will map out the end of asset purchases today,” adding: "Time is running against the ECB and it would be wise to lay out policy for the remainder of the year so any unexpected events over the summer, for instance from Italy, don't interfere with its plans."
Investors will pay much attention to what the ECB President Mario Draghi has to say and how he will describe, for instance, the impact of US trade policy and Italy’s political situation. Patrick O'Donnell, investment manager, Aberdeen Asset Management noted: "It's all going to be about how strong Draghi's forward guidance is," And: “How Draghi manages essentially not to get the market too excited about rate hikes next year but be upbeat enough to end QE this year is the tightrope he has to walk."