The ECB is almost certain to follow today’s 75bp rate hike with further aggressive increases in the coming months. We doubt that even a recession would cause the Bank to halt rate hikes. Against that backdrop, and with uncertainty about policymakers’ willingness to use the new Transmission Protection Instrument, there is significant upside risk to peripheral bond spreads.
Drop-In (Thursday, 8 Sept): Will the ECB step up the fight against inflation? Join us for a briefing after the September meeting decision where we’ll be discussing how fast and far rates are likely to rise – and the risks of policy tightening for the euro-zone bond market. Register now.
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