MFS IM: EMU yield curve expected to remain steep
Annalisa Piazza, Fixed Income Research Analyst at MFS Investment Management, comments on ECB's decision of today:
'The European Central Bank decided to keep interest rates steady at 2% during its latest meeting, a level considered within its neutral range. This decision aligned with market expectations, though yields slightly increased following the announcement of upward revisions to GDP and inflation forecasts. Inflation is now projected to remain at 2% by 2028. However, the press conference tone was less hawkish than the projections suggested, leading to a modest decline in yields afterward.
The EMU yield curve is expected to remain steep, with short-term volatility likely due to stretched market positioning. Pension fund reforms could also influence the curve as 2026 approaches, while short-dated yields will continue to be shaped by incoming data. Despite the upward revisions to GDP and inflation, the ECB’s decision to hold rates steady underscores its cautious stance. The likelihood of a rate hike in the near term remains low, as uncertainties dominate the outlook. Lagarde avoided endorsing hawkish comments made by other ECB officials, signaling a consensus to maintain the current policy stance. The unanimous decision to keep rates unchanged and preserve flexibility suggests no imminent changes to the policy mix.'