London: Some of the biggest money managers in Europe say traders are wrong to bet the European Central Bank is done hiking interest rates.
As a net energy importer, the region is particularly exposed to rising prices if the crisis in the Middle East escalates, and markets are underestimating the possibility of additional tightening in response, according to Legal & General Investment Management, Vanguard Asset Management and Robeco Groep. That leaves short-maturity government bonds particularly vulnerable.
The view clashes with swaps pricing that shows a pause from the ECB virtually baked in this week – and only a 10% chance of a 25 basis-point hike at a subsequent meeting. In the US, swaps show a 40% chance of another quarter-point hike from the Federal Reserve.
“Europe is of greater vulnerability here than any other developed-market bloc,” said Christopher Jeffrey, head of rates and inflation strategy at Legal & General, which has £1.3 trillion ($1.6 trillion) in assets under management. “The ECB is the central bank that could feel the need to overshoot.” At the same time, ECB President Christine Lagarde and colleagues would need to weigh the economic impact of a hike carefully, even if energy prices extend their climb.
