SPEU - ECB Hikes Rates - One More To Come?
Summary
- The ECB has hiked rates by 50 basis points and they are saying they will hike another 50 in March. I think this is the right thing to do.
- They need to continue to focus on getting inflation down. But that will probably be the end. They’ll probably do 25 or 50 in March because inflation was coming down quite quickly in Europe.
- I think that the ECB will probably be looking at next year thinking about have they hiked too much, should they actually be thinking about cutting rates? But that’ll probably be later in the year more towards the end.
By David Zahn, CFA, FRM, Head of European Fixed Income, Franklin Templeton Fixed Income
The European Central Bank hiked rates 50 basis points. Curious about what that means for investors? David Zahn, Head of European Fixed Income shares his thoughts.
Transcript
Hello, this is David Zahn with your European fixed income update. So, the ECB [European Central Bank] has hiked rates by 50 basis points and they are saying they will hike another 50 in March. I think this is the right thing to do. They need to continue to focus on getting inflation down. But that will probably be the end. They’ll probably do 25 or 50 in March because inflation was coming down quite quickly in Europe.
However, the bond markets seem to take it much more, that this is it they’re done, and that yields should start declining quite significantly. We think this will probably be seen as inappropriate when we look back on this and that we will see yields retrace over the next couple of weeks back to levels more of what we had before the ECB rate hike. Because they are going to continue to probably jawbone the market, talk about why rates should be higher, and they don’t really want an easing happening after they are announcing rate hikes. But with that in mind, we do think that any back-up in yields is probably an opportunity for investors to buy duration and really start to extend.
And I think that the ECB will probably be looking at next year thinking about have they hiked too much, should they actually be thinking about cutting rates? But that’ll probably be later in the year more towards the end.
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ECB Hikes Rates - One More To Come?