The ECB’s PEPP “recalibration” highlights the risk of a “cliff-edge” at the end of March, but tapering the PEPP into an amended APP should avoid this.
Some apparent differences between the APP’s PSPP and the PEPP do not always apply in practice, especially in the capital key. We think there is enough flexibility to permit a handover from one to the other without a generalised cliff edge.
However, unless APP rules change on the death of the PEPP or a new scheme is announced, Greek bonds and the very short end may suffer from the transition.
Colombia’s central bank started its monetary tightening cycle last week. The rate hike was in line with our expectations and supported our 2s5s flattener recommendation. We expect the curve to flatten further towards its historical norm on the back of a likely acceleration in the pace of rate hikes with inflation continuing to increase. Despite our expectations, we recommend closing the trade as the high negative carry may cancel the gains if the flattening is gradual.
Separately, the attached file is a snapshot of the EM 10y rates market in which we seek to identify the leaders and laggards among countries by comparing the performance of each to its history as well as to other countries based on their respective betas to an EM rates index.