# Traders ramp up bets on 75 basis-point ECB Sept hike, bond yields jump Author: Pal Sinha, Barnali Author URL: https://financedigest.com/author/pal-sinha-barnali Published: 2022-08-29 Category: TRADING Category URL: https://financedigest.com/category/trading Meta Title: Euro Zone Money Markets Brace for Major ECB Rate Hike in Meta Description: Euro zone money markets predict a 75 basis-point European Central Bank rate hike in September to combat inflation exceeding the 2% target. URL: https://financedigest.com/traders-ramp-up-bets-on-75-basis-point-ecb-sept-hike-bond-yields-jumphtml ![undefined](https://prod.superblogcdn.com/site_cuid_cm5qst7v3003gwirgwqtxn8i8/images/2022-08-29t105829z1lynxmpei7s0c1rtroptp4eurozone-bonds-hedgefunds-1736815340655-compressed.jpg) By Yoruk Bahceli (Reuters) -Euro zone money markets moved on Monday to price in a two-thirds chance of a large 75 basis-point European Central Bank rate hike in September after policymakers made the case over the weekend for a large move to tame inflation four times above their target. Particularly in focus was ECB board member Isabel Schnabel, who argued that the risk is rising that long-term inflation expectations “de-anchor” from the bank’s 2% target and surveys suggest inflation is denting public trust in central banks. Others said frontloading [hikes would be reasonable and that the neutral rate](https://www.financedigest.com/sp-warns-of-possible-economic-blow-hit-to-japan-inc-from-boj-rate-hike.html "S&P warns of possible economic blow, hit to Japan Inc from BOJ rate hike"), estimated around 1.5%, should be reached before year-end or first quarter 2023. Traders on Monday priced in as much as 67 basis points of rate [hikes at the bank’s](https://www.financedigest.com/big-ecb-hike-adds-fuel-to-the-banking-sector-fire.html "Big ECB hike adds fuel to the banking sector fire") Sept. 8 policy meeting, meaning they fully priced in a 50 basis-point move and a 67% chance of a 75 basis-point move, Refinitiv data showed. That compares to a 24% chance of the larger move they priced on Friday, before a [Reuters report that some policymakers wanted to discuss the bigger move raised](https://www.financedigest.com/bank-of-england-to-raise-rates-by-50bps-again-to-tame-inflation-reuters-poll.html "Bank of England to raise rates by 50bps again to tame inflation: Reuters Poll") the odds to 48%. The most important signal (from Jackson Hole) was from Schnabel who talked about the risk of inflation expectations moving above target, that the central [bank would have to hike rates](https://www.financedigest.com/ecbs-villeroy-rate-hike-signals-strong-confidence-in-european-banks.html "ECB’s Villeroy: rate hike signals strong confidence in European banks") more violently, and that is something new,” said Jan von Gerich, chief analyst at Nordea. As [rate hike bets](https://www.financedigest.com/dollar-hits-one-month-high-against-yen-as-traders-bet-on-fed-rate-hike.html "Dollar hits one-month high against yen as traders bet on Fed rate hike") rose, Germany’s two-year bond yield, sensitive to interest rate expectations, rose as much as 19 basis points (bps) on the day to 1.162%, the highest since June 17. Its 10-year yield, the benchmark for the [euro area](https://www.financedigest.com/how-will-the-ecb-contain-fragmentation-risk-in-euro-area-bond-markets.html "How will the ECB contain fragmentation risk in euro area bond markets?"), rose as much as 15 bps on the day to 1.548%, its highest in two months. The [ECB clearly looks with determination to frontload the hikes](https://www.financedigest.com/analysis-investors-stick-to-bets-on-early-end-to-ecb-hikes-as-uncertainty-grows.html "Analysis-Investors stick to bets on early end to ECB hikes as uncertainty grows") and this will linger on ahead of the September meeting,” said Piet Christiansen, chief analyst at Danske Bank in Copenhagen, now expecting a 75 bps hike. ECB chief economist Philip Lane added to the comments on Monday, saying the bank should [raise interest](https://www.financedigest.com/delivery-hero-ramps-up-interest-payments-to-raise-1-billion-euro-convertible-bond.html "Delivery Hero ramps up interest payments to raise 1 billion euro convertible bond") rates at a “steady pace” and that appropriate increments will be larger the wider the bank is form peak rates and the more skewed the risks are to its inflation target. Bond yields eased from the day’s highs as gas prices dropped sharply after Germany’s [economy minister said he expects prices to fall as Germany is set to hit](https://www.financedigest.com/uk-economy-set-for-smaller-hit-in-2023-than-previously-feared-imf.html "UK economy set for smaller hit in 2023 than previously feared – IMF") its 85% Oct. 1 storage target in early September. Germany’s 10-year yield was up 9 bps by 1350 GMT. Ten-year yields in Italy, a [key ECB](https://www.financedigest.com/morgan-stanley-others-now-forecast-4-peak-for-key-ecb-rate.html "Morgan Stanley, others now forecast 4% peak for key ECB rate") stimulus beneficiary, jumped as much as 17 bps to 3.873%, the highest since mid-June, pushing the closely-watched spread to German peers to 236 bps, the highest in a month. Rohan Khanna, strategist at UBS, said the more front-loaded rate hikes, the more likely the ECB will have to consider activating its Transmission Protection Instrument, under which it will [buy bonds from countries whose borrowing costs](https://www.financedigest.com/blessing-or-burden-what-else-could-you-buy-for-the-cost-of-your-timeshare.html "Blessing or burden? What else could you buy for the cost of your timeshare?") relative to Germany are rising through no fault of their own. The harder the [ECB pushes on the rate-hike](https://www.financedigest.com/hawkish-ecb-comments-push-up-rate-hike-expectations.html "Hawkish ECB comments push up rate-hike expectations") pedal, the faster we are likely to get to 300 bps on this spread,” he said. (Reporting by Yoruk Bahceli, additional reporting by Dhara Ranasinghe; Editing by Dhara Ranasinghe, Emelia Sithole-Matarise and Angus MacSwan) --- This blog is powered by Superblog. Visit https://superblog.ai to know more. ---