Goldman: Data-Dependent EUR Duration

Goldman Sachs note that “the ECB now expects that rates are sufficiently restrictive, and that it will take a meaningful upside surprise in inflation to see another hike.”

• “This reinforces the asymmetry towards longs in 1y1y, especially if activity data remains weak.”
• “However, given the still-elevated uncertainty on both the growth and inflation front - including rising oil prices - we expect market participants' assessments to remain sensitive to upcoming data.”
• “Our economists look for a consumption-led rebound in growth in H124 which, if combined with a stabilisation out of China, could constitute an important constraint on European fixed income markets.”
• “For these reasons, the outlook for duration is data-dependent, even as the ECB steps back as a source of market volatility. We continue to expect 10y Bunds at 2.75% at year-end, in part due to the effect of ECB QT.”