The ECB Throws Water on the Investor Sunlounger
Mario Draghi can raise rates before he goes. Really.
Wake up, investors!
Photographer: Yvan Cohen/LightRocket via Getty Images.
The European Central Bank lost control of the euro money market yield curve, and it wants it back. It has just snapped back on the leash by sending as clear a message as it can — within the incredibly tight framework it has set for itself — that it thinks rate expectations are too low.
At its last policy meeting, on June 14, the ECB sought to soften its decision to end QE this year with a forward commitment not to raise rates until after the summer of 2019. The money markets have increasingly taken this to mean that rates may not rise until the December meeting in that year. As of Monday, 10-year bund yields had slipped below 30 basis points, having halved since mid-May. The euro fell nearly two percent against the dollar following the ECB meeting, and has only partially recovered.