Goldman Favour Paying ECB Sep OIS, Yield Risks Skewed Asymmetrically Lower

Late Friday Goldman Sachs noted that ECB September “pricing has failed to converge decisively towards a hike or a pause.”

• “Though this has been relatively rare this cycle, the July shift to a fully data-dependent approach means this is a feature, and not a bug, of recent ECB communication.”
• “As a result, market pricing is unlikely to sway the ECB and rather, we continue to expect a 25bp hike, and see value in paying the meeting.”
• “Looking further out the curve, we believe rates are unlikely to move much higher on either a hike or a pause, for two reasons.”
• “First, with the ECB essentially dismissing forward guidance only a meeting ago, we see limited scope for forceful communication about policy decisions ahead.”
• “Secondly, even if the ECB was to try and provide a hawkish impulse through guidance, we see the currently weak dataset as likely to limit its effectiveness.”
• “In that setup, we think forwards beyond the very front-end (such as 1y1y or 2y1y) are likely insulated from a significant repricing and that risks are skewed asymmetrically towards lower yields.”