“The European Central Bank finally said goodbye to eight years of negative interest rates and decided to double the announced size of the first rate hike, citing the Governing Council’s updated assessment of inflation risks. Expectations have risen in recent days after “sources” indicated that a 50 basis point increase was under consideration. With this first major step, the board can now assess the future rate path from one meeting to the next. Markets expect another 140 basis points to raise interest rates through the end of the year, indicating a stable path in increments of half a percent per session. However, The deteriorating economic conditions in the coming months could lead to an early end to the tightening cycle.”
“The failure of the Italian ruling coalition and the resignation of Italian Prime Minister Mario Draghi led to a sudden widening of Italian-German bond yield spreads, which could pose an obstacle to a smooth monetary policy transition. However, in response to repeated questions during the press conference, President Lagarde refused to disclose whether The tightening of financial conditions, caused by subdued domestic policies, justifies the use of the new transmission protection instrument (TPI). At this point, we do not believe this is the case because there is no contagion to other peripheral revenue.”
Dave Chappelle, Primary Fixed Income Portfolio Manager at Columbia Threadneedle Investments
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