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EGB/Gilt: ECB's 50bp or 75bp Hike Decision Finely Balanced


Euro area government bonds trade a touch weaker heading into today's ECB meeting.

  • It is a close call on whether or not the ECB will hike by 50bp to 75bp. A 75bp move signal an intention to frontload rate tightening and opens the door to similar sized moves in the future if necessary.
  • A 50bp hike, meanwhile, would suggest that the GC backs Philip Lane's 'not too fast, not too slow' approach and raises the question of what would it take for the ECB to consider a 75bp move given that the deposit rate stands at zero and euro area inflation is getting closer to 10%.
  • Bunds have traded lower and the curve has bear flattened. Yields are up 1-3bp with the long end of the curve flattening 2-3bp.
  • The OAT curve has similarly flattened with the 2s30s spread narrowing 4bp.
  • BTPs opened firmer but have gone on to have a mixed session with performance uneven on the day.
  • New UK PM Lizz Truss is today unveiling a large scale energy aid programme which will keep household energy bills capped at £2,500 for each of the next two years.
  • Gilts have continued to firm as right tail inflation risks are priced out in the near term. Yields are 1-4bp lower on the day.

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