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Hawkish Guidance Sinks Bunds, Widens BTP Spreads

ECB

50bp hike in policy rates as expected, but Bunds much lower and BTP spreads wider.

  • Quite hawkish guidance (rates "still have to rise significantly at a steady pace" "based on the substantial upward revision to the inflation outlook").
  • Not necessarily hawkish on QT but pretty concrete plans on asset runoff.
  • ECB will initiate decline of APP portfolio in Mar 2023 by not reinvesting all maturing principal. Pace of E15bln per month on average until Q2 2023 "and its subsequent pace will be determined over time.
  • Will reinvest PEPP securities "until at least the end of 2024", and will "continue applying flexibility in reinvesting redemptions coming due in the PEPP portfolio".

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