ECB Research: 10bp, 20bp or ...? ECB In Uncharted Waters

Published 03/20/2018, 02:48 AM

We continue to expect the ECB to raise the deposit rate by 10bp in Q2 19, also after weighing the arguments for the size of the hike in this note.

The degree of subjectivity regarding the first hike is high. We doubt even the ECB's GC members have formed a view, yet.

For market pricing, we argue that it is neither the size nor the timing that is crucial to markets, but how the first hike is communicated and its subsequent rate path.

We believe that the risk/reward for the ECB coming earlier with the hike rather than later is not balanced. We recommend receiving 2Y2Y EUR swap outright.

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