Draghi’s Inflation Gauge Gives Bond Bears Plenty of Ammunition
(Bloomberg) -- Normally, this chart would be a cause for celebration in the euro area; the European Central Bank’s preferred gauge for inflation expectations is at long last above the level it had dropped to when then-ECB President Mario Draghi delivered his 2014 Jackson Hole speech -- the one that helped open the door for quantitative easing in the region.
No wonder policy makers are struggling to convince investors they still need to persist with plentiful stimulus in the region. And no wonder the bond market is confronted with rising yields. Back when Draghi delivered that seminal speech, the bund yield was a shade below 1% -- a full percentage point higher than today.
On Thursday, Draghi’s successor Christine Lagarde failed to temper market pricing for 20 basis points of hikes in December 2022 when she said that view isn’t supported by the central bank’s analysis. By Friday, investors had assumed an even more aggressive timeline, with the hike now seen coming two months earlier.
- This was a post on Bloomberg’s Markets Live blog. The observations are those of the blogger and not intended as investment advice. For more markets analysis, go to MLIV.
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