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Two changes to the guidance leading to FI rally / EUR selloff

ECB
  • Regarding rates, the ECB is noting two things here: first, that we are much closer to neutral than previously - it says it has made "substantial progress in withdrawing monetary policy accommodation"
  • And second it no longer references "several meetings" of further hikes when, just that it "expects to raise interest rates further".
  • These changes are in addition to the policy decisions on TLTROs and remuneration of reserves. And they are driving Euribor futures and Bunds higher and the euro lower.
  • The September guidance was: "This major step frontloads the transition from the prevailing highly accommodative level of policy rates towards levels that will ensure the timely return of inflation to the ECB’s 2% medium-term target.... over the next several meetings the Governing Council expects to raise interest rates further"
  • The guidance today was: "With this third major policy rate increase in a row, the Governing Council has made substantial progress in withdrawing monetary policy accommodation. The Governing Council took today’s decision, and expects to raise interest rates further"
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