Goldman: ECB Won’t Stand In Way Of Long-End, Recos 10s30s Bund Steepeners

{EU} EGBS: Goldman Sachs suggest that last week's ECB meeting "further supported our expectations for higher long-end yields and a steeper EUR curve. First, rather than specific yield levels, the ECB is considering a 'holistic' set of financing conditions. Second, the maintaining of easier financing conditions relates to the inflation outlook, suggesting that higher yields in the context of an improving economy can be consistent with a still accommodative environment. Third, President Lagarde reiterated the two-sided implementation risk of the PEPP program, which adds significance of the lower purchase pace so far in 2021. We have previously argued that there is plenty of room for a cyclical repricing of 30y EUR rates higher on the back of vaccine developments and cyclical improvements, and while recent moves have taken macro assets closer to pricing in the growth improvement we expect in Q2 2021, 30y EUR rates have lagged by around 30bp. This adds to our conviction that the ECB would not stand in the way of such a repricing, particularly at longer maturities (though it may still push back against repricing up to the 10y tenor); therefore, given our positive view on the upcoming recovery, we recommend adding 10s30s bund steepeners. Similar expressions in the EUR swap curve also make sense in our view."