Investment Institute

ECB Quantitative Tightening: Navigating a treacherous path

  • 01 March 2023 (7 min read)

Key points

  • Following 2022’s meteoric rise in inflation - and after years of ultra-loose monetary policy – the ECB is about to start a prudent quantitative tightening
  • The scale of tightening looks relatively modest against the very significant net issuance of European government bonds planned this year. But investors should note that June and September could be catalysts for enhanced market stress
  • Our analysis suggests further upside in 10-year sovereign yields, peaking in the third quarter before receding alongside core inflation. Investors should be mindful of upside risks to the model’s forecast if there were to potentially be a faster balance sheet unwind
  • However the quantitative tightening process is highly uncertain. We find it useful to consider why it may not be symmetrical to quantitative easing
ECB Quantitative Tightening: Navigating a treacherous path
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