German bond yields slip as ECB official says rate reversal is ‘fast approaching’



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The yield on the 2-year German bund fell Monday as a European Central Bank official raised the prospect of a fairly imminent rate cut.

The 2-year German bund
BX:TMBMKDE-02Y
dropped 3.5 basis points to 2.68%. The euro
EURUSD,
-0.17%
was steady at $1.0773.

“Macroeconomic conditions suggest that disinflation is at an advanced stage, and progress towards the 2% target continues to be rapid. The time for a reversal of the monetary policy stance is fast approaching,” said Bank of Italy Gov. Fabio Panetta in a speech over the weekend.

He said the March projections from ECB staff “will provide useful elements for assessing the next monetary policy move” as he also said the central bank has to balance between cutting interest rates “quickly and gradually” versus doing so “later and more aggressively.”

Economists at Citi said his speech is one of the most dovish in recent weeks. Recent comments have ranged from Austrian central bank chief Robert Holzmann saying rate cuts might not even happen this year, to ECB chief economist Philip Lane saying there’s a risk of overtightening.



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