Traders estimate ECB rate hikes at 75 basis points by September

The logo of the European Central Bank (ECB) in Frankfurt, Germany, January 23, 2020. REUTERS/Ralph Orlowski//File Photo

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June 8 (Reuters) – Money markets stepped up bets on the European Central Bank (ECB) interest rate hike on Wednesday to price more than 75 basis points (bps) of hikes by September.

While the bank is largely expected to start rising in July and move in 25 basis point increments, the pricing implies traders now expect its hikes to include a rare 50 basis point move in the pricing. only one meeting by September, ahead of the October schedule scheduled for Friday. .

The next ECB monetary policy setting meeting will take place on Thursday.

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Traders have steadily increased their bets on ECB hikes following a stronger-than-expected Eurozone inflation report last week, bolstering the case for bigger moves in the ECB. from the central bank. Several policymakers said they were open to a 50 basis point move.

“It seemed inevitable to me that betting on a 50 basis point hike would become more popular given that the ECB is widely perceived to be behind the curve and other central banks have also started to move in increments of 50 basis points,” said Antoine Bouvet, senior rate strategist at ING, referring to the Reserve Bank of Australia. Australia’s central bank raised interest rates by 50 basis points on Tuesday in a hawkish surprise. Read more

“The key question for tomorrow is whether the ECB can live up to hawkish expectations. Obviously the April meeting was confusing for the markets with rhetoric not matching market expectations and I suspect same goes at this meeting,” Bouvet said.

Bond yields fell sharply after the ECB’s April meeting, when it refrained from making firm commitments to withdraw stimulus beyond what it announced in March. Read more

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In the broader market, bond yields continued to rise on Wednesday.

Germany’s 10-year yield, the eurozone benchmark, hit a new high since 2014 at 1.368% and rose 6 basis points on the day at 15:14 GMT.

It extended its rise after data showed the eurozone economy grew much faster in the first quarter of the year than in the previous three months despite the impact of war in Ukraine, with an earlier estimate revised upwards. Read more

The Italian 10-year yield was up 7 basis points to 3.473%, but lower than the highest since 2018 at 3.55% on Tuesday. The closely watched risk premium on Italy’s 10-year debt versus Germany’s was 211 basis points, down from more than 220 basis points earlier this week.

On the primary market, Germany raised 3.266 billion euros and Portugal 750 million euros thanks to 10-year bond auctions.

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Reporting by Yoruk Bahceli; additional reporting by Danilo Masoni Editing by Mark Potter, Kirsten Donovan

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