Draghi treads carefully to avoid Taper Tantrum 2.0

Brendan Lardner, active fixed income portfolio manager at State Street Global Advisors, said the ECB announcement was in line with market expectations. In terms of the impact on the bond market, he thinks the long taper could support certain fixed income asset classes.

“As this scenario was largely built into market prior, the reaction in the core euro area sovereign rates market should be relatively muted but there is some scope for the euro exchange rate to weaken somewhat given the lack of a definitive end to purchases,” he said.

“This relatively longer taper is likely to provide some support for higher yielding assets, such as peripheral sovereign bonds and corporate credit.”

Andrew Mulliner, fixed income portfolio manager at Janus Henderson Investors, added:  “We are of the view that peripheral government bond yields will continue to be well supported and rate volatility is unlikely to rise as a result of the ECB any time soon.”

The euro lost 0.5% against the dollar yesterday following Mr Draghi’s announcement.

David Lamb, head of dealing at FEXCO Corporate Payments, said the single currency suffered because a prospective rate hike was kicked further into the long grass.

“With the prospect of a eurozone interest rate rise punted well into the nebulous future, the single currency has suffered accordingly – losing ground against both the dollar and even the embattled pound.

“The ECB has made no secret of its fears that the strong euro is hurting eurozone exporters, and it’s likely these fed into its decision to leave the monetary stimulus taps running.

“But with inflation creeping up as growth takes hold, such recalcitrant dovishness will eventually have to give way as the Bank’s mandate to restrict inflation takes precedence.

“So while the euro has been pegged back by [yesterday’s] decision, the strength of the eurozone economy could soon nudge it out of the narrow range it has held for the past month.”