ECB to keep cutting in March: Goldman Sachs AM

By Tim Stewart
 — 1 minute read

Bond markets are expecting the European Central Bank (ECB) to head further into negative interest rate territory when it meets on 10 March, says Goldman Sachs Asset Management.

Speaking to InvestorDaily, Australia fixed-income client portfolio manager, Sean Reynolds, said the German Bund market is pricing in a cut to the official ECB interest rate later this month.

"The ECB deposit rate is currently -30 basis points," Mr Reynolds said.


Ten-year German Bunds hit an all-time low of 7 basis points in April 2015, he said, whereas they are sitting at around 10-11 basis points at the moment.

"Closer in on the curve and we’re well into negative territory. If you own a two-year German government bond it is currently trading about -55 basis points," Mr Reynolds said. "So what the market is expecting is that the ECB is going to cut further."

In December 2015, in a similar move, the European bond market was pricing in a 20-basis point cut, but the ECB made a cut of 10 basis points, Mr Reynolds added.

"The market is again anticipating a bigger move – maybe a 20 point move," he said.

"We'll wait and see – we’re certainly expecting more stimulus from the ECB [including more quantitative easing]. We’re expecting a further move into negative territory."

As for whether there will ever be an end to stimulatory monetary policy measures from the ECB, Mr Reynolds was more circumspect.

"[ECB president Mario] Draghi is faced with a broad backdrop of disinflationary forces. There is criticism, and there is opposition to just 'QE forever' and negative rates forever," he said.

"The German camp have had misgivings about QE for a long time, even before they implemented the policy. Draghi so far has been able to win that argument because of disinflation and poor growth," Mr Reynolds said.

'We think Draghi probably wins the argument in the next round of easing [on 10 March]."

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ECB to keep cutting in March: Goldman Sachs AM
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