Bond spreads widen in the euro area

Yesterday was a relatively quiet day on the markets in the absence of a key market mover. Christine Lagarde assured that the adjustment of the ECB’s monetary policy would be gradual, but the market expects a rate hike as early as September and scenarios of a hike as early as June are starting to circulate. However, it is important to bear in mind that the ECB has an additional constraint compared to the Fed or the BoE: not to provoke a new sovereign debt crisis. Already, not only are German rates rising, but spreads against this benchmark are widening, and all the more violently as the country’s indebtedness and financing needs are high. This foreshadows a return to fiscal orthodoxy which, coupled with monetary tightening, will quickly cool the recovery. The ECB’s potential to raise rates clearly seems less than that of the Fed and the BoE. The euro has not continued its rebound and is down slightly at USD 1.142. The US 10-year is close to 2% (1.94%).

Today’s economic calendar is still rather thin: the most interesting report is certainly the NFIB survey of US small businesses, particularly with regard to inflationary pressures.