German 10-year yields fell as low as 1.99% as ECB President Christine Lagarde downplays the need for more rate hikes. They've since bounced to 2.01% but are down 11 bps on the day.
The ECB statement removed the guidance for 'several' more hikes and Lagarde said they will take it meeting by meeting while acknowledging there will be at least one more hike.
On net though, the market isn't convinced that hikes are coming and the terminal top is now pricing around 2.7% vs 2.9% previously.
What's encouraging here is that bond markets aren't kicking and screaming. Italian 10-year yields are down 16.5 bps. The market is giving the ECB plenty of leeway here to do its job and not doubting that inflation will come down. That's a nice setup.for European assets. The risk is that inflation runs again and the ECB is forced to re-commit to rate hikes.
I tend to think the ebb and flow of this will follow energy and that's going to be a trade based on the weather this winter.
