ING expects the ECB to boost its PEPP stimulus later this week
The firm sees the central bank increasing the size of its PEPP stimulus by €500 billion, extending purchases into the middle of next year at its Thursday meeting. Adding that:
"Combined, they imply a slower pace of purchases than what has been implemented so far: from the current run rate of roughly €105 billion per month that can continue until October, to €56 billion if the additional envelope is spent evenly until June 2021."
This should allow Italian bonds to benefit and thus narrow the 10-year bond yields spread over Germany to 175 bps this week before tightening to 160 bps in the following weeks, the firm writes in a note to its clients.
Translating that argument, it would be euro supportive if the Italian-German bond yields spread tighten further but the euro still has other risks to worry about i.e. EU recovery fund proposal with the summit to discuss that set to take place later in the month.
