"Trust Us" | Lagarde Pleads As Eurozone Curves Steepen

01/11/22 02:51PM EST

Editor's Note: Below is a note written by Hedgeye editor Eric Wallerstein and Junior Macro analyst Ryan Ricci.

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"Trust Us" | Lagarde Pleads As Eurozone Curves Steepen - ecb

ECB President Lagarde reiterated her "unwavering commitment" to maintaining price stability on Tuesday, Jan 11.

As a reminder, Eurozone headline inflation currently sits at 5%. The ECB's target rate is 2%.

Her comments came while speaking at the German Bundesbank President Nagel's confirmation (whose predecessor resigned after opposing the ECB's extreme dovishness, to no avail, for a decade. Go figure.)

For the past several months, Lagarde hammered the point home that the ECB will not hike rates or turn off the faucet anytime soon. Several ECB Governors have endorsed her endless QE position as well. 

Eurozone Rates responded in kind

The German Bund 10-year yield briefly ramped to 0% (#NIRP), before tempering down to roughly -2bps (as of midday eastern time.) Other developed European longer-dated bonds rose in tandem, with British Gilts and French 10-years hitting recent highs.

"Trust Us" | Lagarde Pleads As Eurozone Curves Steepen - 10y1.11

Betting on perma-dovishness out of the ECB (as President Lagarde has repeated ad nauseum), Eurozone 2-10 yield curves steepened in a bull fashion.

While short term rates rose slightly (2-year Gilts were flat intraday, with Bunds and French 2-years up +3 bps), longer-dated yields rose to a greater degree (10-year Gilts were up +3 bps, while Bunds were up +11 bps and French 10-years were up +8 bps.) 

These rates are as of ~ 12pm ET; the British and French yield curves retraced to relatively unchanged on the day by 3pm ET while the Bund curve kept its steepening. 

"Trust Us" | Lagarde Pleads As Eurozone Curves Steepen - 2.10.yc.1.11

With no end in sight for QE, (developed) Eurozone yields are pushing higher. Germany may even seen positive yields for the first time since May 2019... welcome to the ECB, Governor Nagel.  

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