ECB market rate bets: still some unfinished business for the hawks

"What happened is a reminder that hiking cycles usually get stopped out abruptly because of unforeseen fragilities," said BofA strategist Erjon Satko.

The November 2023 ECB euro short-term rate forward rose to 3.65% on Wednesday, implying expectations for a deposit rate of around 3.75%. Earlier this year, it took a month of hawkish rhetoric from ECB policymakers and robust February inflation data to convince markets the central bank was ready to raise rates above 4%.

In the two weeks from March 10, volumes for German Bund and Italian BTP futures were close to their highest since early 2020, JPMorgan analysts said, "suggesting a widespread adjustment of positioning at a pivotal point on monetary policy expectations".But Bund futures volumes declined after March 15 as markets once more revised their rate expectations upwards.

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