EUR Rates: ECB Turns Hawkish, Markets Rally

Nordea argues that the ECB is shifting toward a hawkish stance to protect its credibility against second-round inflation effects, yet the market is currently rallying and pricing out future hikes.

Key Takeaways

• 1.ECB rhetoric has turned hawkish, making a June policy rate hike highly likely as members worry about energy shocks spilling into broader inflation.
• 2.Financial markets are currently ignoring these hawkish signals, with front-end rates rallying and rate hikes being priced out for the period after June.
• 3.Nordea recommends fading the recent rally, suggesting that markets are too optimistic about inflation anchoring and are underestimating the risk of second-round effects.

Table of Contents

• New, hawkish tones from the ECB
• Markets are not listening
• ECB pricing
• Ideas
• Previous trade ideas
• Previous EUR rates notes
• Disclaimer
• Risk information
• Conflicts of interest
• Distribution restrictions

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