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Market Reaction To ECB Decision/Presser Is Hawkish

ECB VIEW

The initial reaction to the ECB decision was hawkish, with higher yields across the German curve and wider periphery EGB spreads.

  • Overall the size of the PEPP envelope increase was in line with expectations, with doves rebuffed to some degree by Lagarde saying that it need not be used in full. And as a BBG sources headline put it, the 9-month extension of PEPP was a 'compromise' by the Governing Council.
  • Also disappointing the doves: TLTRO adjusted to make it "a little bit more challenging" (per Lagarde) to get funding at lowest possible rate of -1%.
  • Bund futures 45 ticks lower vs time of the decision, though had dropped as much as 75 ticks. BTP 10-Yr spread/Bunds 2bps wider, though had knee-jerked lower on the decision. EUR hit session highs of 1.2135 vs USD during the presser.
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