MBS Day Ahead: Bonds Tune in to Draghi as ECB Remains Dovish

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Posted To: MBS Commentary

The ECB announced no change to its policy rates this morning, which was completely in-line with market expectations. In a bit of departure from the norm, they provided some qualitative forward guidance. In other words, they told markets how long they expect to keep buying bonds and keep rates low. This is exactly what the Fed did when it began to normalize policy in 2013. The Fed and the ECB both reiterated that they'd continue to reinvest bond market income until well after they began to hike rates. This was very helpful for bonds when the Fed employed the tactic in 2014-2015, and it looks to be helping European bond markets so far today. As always, big moves in European bond markets will have at least some effect on US bond markets. Today is no exception, but Treasuries aren't nearly…(read more)

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