Bund & BTP Futures Settle A Little Above Pre-Announcement Levels

Two-way price action in the wake of the latest ECB decision, with an initial uptick quickly reversed allowing Bund and BTP futures to register fresh session lows, before support came back in and EGBs firmed, leaving those contracts a little above pre-announcement levels.

• The ECB has pointed to a need to “ensure that the policy rates will be brought to levels sufficiently restrictive to achieve a timely return of inflation to the 2% medium-term target and will be kept at those levels for as long as necessary.” It also highlighted its data-dependent stance, noting that “in particular, the Governing Council’s policy rate decisions will continue to be based on its assessment of the inflation outlook in light of the incoming economic and financial data, the dynamics of underlying inflation, and the strength of monetary policy transmission.”
• Elsewhere, the ECB noted that the “the Governing Council will keep reducing the Eurosystem’s asset purchase programme (APP) portfolio at a measured and predictable pace. In line with these principles, the Governing Council expects to discontinue the reinvestments under the APP as of July 2023.”
• The statement reflects a bit of a tradeoff, with the APP announcement and rhetoric surrounding the need to move policy rates to “sufficiently restrictive levels” likely the key areas of the bargaining agreement struck between the hawkish and dovish wings of the ECB, placating those calling for a 50bp step today.
• One area that didn’t receive any discussion was the potential for some sort of bridging loan agreement ahead of the impending TLTRO redemption (in June), that will come under focus in the press conference.