The negative yield discounts on EUR should decrease as the ECB normalises policy, according to the analysts at Nomura.
“The ECB is taking steps toward monetary policy normalisation. Increased negativity in the euro area bond market has likely been amplified by euro area bond selling by foreign investors, especially by reserve managers. As the ECB makes progress on its normalisation, there will be fewer euro area bonds with negative yields, and this should slow euro area bond selling by foreign investors. The negative yield discounts on EUR may be as much as 4-5%, and this should decrease as the ECB normalises policy. The mid-term flow picture should improve further, sustaining EUR appreciation into H2.”
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