ECB: Nagel Flags Large-Scale Asset Purchases Should Remain Exception
Jul-09 12:15
ECB's Nagel speaks today in Tübingen on the topic of "Target achieved, but challenges still remain – monetary policy since the 2021 strategy review" - his comments appear to be seen in conjunction with the ECB's strategy review published last Monday. Key highlights below:
- "We need to be prepared for price developments to become more volatile in general. I am afraid that heightened uncertainty will become the new normal. And a number of structural developments suggest that price pressures will remain elevated over the medium term."
- "With the recent experiences in mind, I am convinced that the use of large-scale asset purchases should remain the absolute exception."
- "Although this is not the time for rate forward guidance, forward guidance remains in our toolbox. The same is true for the other instruments, notably large-scale asset purchases and targeted longer-term refinancing operations. However, we will usually use these tools only at the lower bound of interest rates, where they have proven to be useful."
- "We will therefore aim to formulate forward guidance in more flexible terms. A state-dependent formulation would help in this regard. State-dependent forward guidance means that it is tied to certain economic conditions, for instance an inflation threshold, and not to a specific schedule. It makes it clear under what circumstances monetary policy will deviate from an announced path."
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STIR: Repo Reference Rates
Jun-09 12:10
- Secured Overnight Financing Rate (SOFR): 4.29% (+0.00), volume: $2.667T
- Broad General Collateral Rate (BGCR): 4.27% (+0.00), volume: $1.072T
- Tri-Party General Collateral Rate (TCR): 4.27% (+0.00), volume: $1.043T
- (rate, volume levels reflect prior session)
FOREX: Subdued Volumes Contain Spot, Limiting Vol and Boosting Carry Theme
Jun-09 12:01
- Currency volumes across G10 are unsurprisingly subdued considering the intraday range play across G10 FX, with JPY futures ~10% below average for this time of day, EUR futures ~20% below and GBP futures ~30% below.
- Risk and market activity should pick into the second half of the week with the US inflation prints, the 30-year Treasury auction, the UK spending review details and any potential outcomes of the US-China trade talks, but it's doing little to prop up implied vols - one-week JPY vols have dipped below 10 points today for the first time this month (with similar price action in the front-end of the GBP and EUR curves), a level that markets rarely hold below for any sustained period.
- This pressure on the front-end of the vol curve continues to work in favour of the dominant carry trade themes we've noted since US Liberation Day. While the long-held status of JPY as a funding currency has ebbed since last year's intervention, other currencies have stepped in to take advantage of regional dislocations (most recently HKD and CNY), which are compensating for falling policy rates among traditional carry targets such as the MXN, AUD and others.
SPAIN T-BILL AUCTION PREVIEW: On offer tomorrow
Jun-09 12:01
Tesoro Publico has announced it will be looking to sell a combined E2.0-3.0bln of the following letras at its auction tomorrow, June 10
- the 3-month Sep 5, 2025 letras
- the 9-month Mar 6, 2026 letras
