Divergence Between Central Banks as ECB Takes Action

Northern Trust Asset Management Monthly Market Commentary for March 2021

Eurozone Market Update

As expected, the ECB announced no policy changes in March – the meeting concentrated on long end rate moves. The ECB emphasised that its main focus was to preserve favourable financing conditions, signalling that they will step up QE purchases to achieve this.

In a more forceful reaction than the market expected, the ECB diverged from the BoE by explicitly signalling a step up of the Pandemic Emergency Purchase Programme, increasing weekly purchases to anchor long end rates down. The ECB’s stance would effectively provide a backstop to spreads widening.

Unlike the BoE and the Fed, the first 10bps hike is priced in for 2024, further illustrating the divergence between the Central Banks.

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