Credit Agricole CIB Research discusses the possible outcome of the October ECB policy meeting, in which the central bank is expected to announce details of its QE extension on 26 October.
"We think that the Governing Council should keep the short end of the EGB curve firmly anchored, while the reduced asset purchases could propel the long end higher against the backdrop of a still-vigorous Eurozone recovery.
Ahead of the ECB meeting, the Eurozone money markets seem to have largely priced in the prospect of very low policy rates well beyond 2018. At the same time, the levels of long-term EGB yields do not seem to reflect the prospect of reduced ECB purchases from here.
Thus, we see scope for further steepening of the EGB yield curves and renewed EUR upside, especially if short-term Eurozone rates remain relatively stable," CACIB argues.
In line with this view,