Yields Drift Higher Through Press Conference, But Remain Lower vs Yesterday

EGB yields drifted higher through President Lagarde's press conference, as she stressed that rate cuts were not discussed at the December meeting.

• 10Y Bund yields traded in a 6bp range through the press conference, reaching fresh intraday highs at a point, but still remain lower than pre-Fed closing levels.
• The lack of meaningful pushback against current market rate cut pricing will have limited the pullback in core FI.
• Still, as noted above, ECB rate cut pricing moderated a touch, with ECB-dated OIS contracts pricing 151bps of cuts through 2024 (vs 153bps pre presser).
• On PEPP, the decision to fully end reinvestments by the end of 2024 was unanimous amongst the Governing Council, while the decision to taper reinvestments by 50% from H2 2024 was indicated to be a compromise amongst Council members, some of whom wanted a faster end to the programme.
• Despite this, Lagarde noted that PEPP has served its purpose as a pandemic relief programme, which promoted a modest pull-back of periphery spreads from tightest levels (the BTP/Bund spread is currently 168.7bps after reaching a low of 165.5bps during the presser).