MFS: Bund yields fall to 2,25% end 2024 as ECB and Fed will cut rates

MFS: Bund yields fall to 2,25% end 2024 as ECB and Fed will cut rates

July 19, 2024

Interest Rates Fixed Income ECB Fed
Koersgrafiek (07) koers pijl omlaag daling crisis

As widely expected, the ECB kept all three of its policy rates on hold. The central bank still considers prevailing rates are contributing to lowering inflation and that monetary policy is keeping financing conditions restrictive. Future decisions will still ensure that the policy rates remain 'sufficiently restrictive for as long as necessary', says bond expert Peter Goves from American asset manager MFS.

Our base case is for a cut in September. We don’t necessarily believe September is 'wide open'. Indeed, a cut is around 80% priced for September. We believe upcoming data should affirm the disinflationary narrative and enable a cut at the next meeting. Together with rising chances of the Fed cutting (global drivers dragging yields lower), we see Bund yields falling over H2 with a year-end target of 2.25%. This keeps us constructive on core euro area duration.

Goves: 'EGB spreads (ex France) remain relatively resilient, with 10yr BTP-Bunds back at tight levels. QT policy has been communicated transparently with predictable implementation. Supply continues to be absorbed well too and pressures are waning over the summer months. We continue to see potential volatility localised in OAT-Bund spreads, which continue to remain vulnerable to France’s budgetary and government formation processes.'

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