Goldman: Faster QT Is The Bigger Market Risk, Not Reserve Policy

Goldman Sachs write “with two recent changes in remuneration policy, questions on ECB balance sheet policy have gained prominence, and rightly so in our view.”

• “Additional changes in remuneration policy cannot be excluded, but we think ECB QT acceleration is the more significant risk investors should be focusing on.”
• “While changes in remuneration policy deal with the side effects of having a large balance sheet, faster QT would do more to take excess liquidity and ECB bonds holdings towards ‘the new normal.’
• “Secondly, recent ECB surveys show that the modal case amongst ECB observers is for unchanged QT parameters, whereas in contrast, the ECB decisions made so far on remuneration policy seem to have been partly calibrated to minimize market volatility.”
• “Given the scope for markets to price larger odds of QT acceleration, we continue to like German swap spreads shorts. We do not think the Bundesbank decision will derail our swap spreads tightener thesis, because although government deposits were very elevated at the height of the energy shock, they have since then converged back towards pre-COVID levels (standing at ~€60bn).”