The yield on the 2-year German bund declined on Monday following comments by a European Central Bank official hinting at a potential imminent rate reduction.
The 2-year German bund
BX:TMBMKDE-02Y
decreased by 3.5 basis points to 2.68%. The euro
EURUSD,
remained stable at $1.0773.
Bank of Italy Governor Fabio Panetta, in a speech over the weekend, stated that “Macroeconomic conditions suggest that disinflation is at an advanced stage, and progress towards the 2% target continues to be rapid. The time for a reversal of the monetary policy stance is fast approaching.” He also remarked that the March projections from ECB staff “will provide useful elements for assessing the next monetary policy move” and emphasized the need for the central bank to strike a balance between quickly and gradually cutting interest rates versus taking a more aggressive approach later on.
Citi economists described his speech as one of the most dovish in recent weeks. Recent comments have been diverse, with Austrian central bank chief Robert Holzmann suggesting that rate cuts might not materialize this year, and ECB chief economist Philip Lane warning of the risk of overtightening.