The European Central Bank (ECB), as expected kept the monetary policy unchanged on Thursday. Analysts at Nordea explained the ECB maintained the current pace of bond purchases and pushed forward the decision on scaling down the flow of buying into September. They see the current ECB’s stance suggests higher yields will have to wait for a bit longer. 

Key Quotes: 

“The ECB could then decide on lower purchase volumes at the September meeting when the starting point is already lower due to the slower August buying. The September meeting is set to be very interesting, since it could also include conclusions from the ECB’s strategy review, which the ECB has said will be concluded during the second half of the year. The monetary policy setup could potentially then be tweaked in other ways as well in September.”

“We continue to expect net PEPP purchases to be discontinued by the end of March 2022, but see the inflation outlook to still warranting further easing via an expanded Asset Purchase Programme (APP) after the PEPP has been concluded.”

“After the downward moves already seen in the past weeks, we do not see much further room for longer bond yields to fall. The continued high pace of ECB buying supports yields at close to current levels over the coming few months, but we expect longer yields to aim higher, curves to steepen and intra-Euro-area spreads to widen again towards the autumn. We also think the EUR/USD will aim lower later in the summer.”