The ECB is Resetting Global Term Premium

The ECB pivot is now well underway. In the words of President Lagarde, “the situation has changed.” Her words couldn’t more true, and are true on a global macro level that will likely spillover from just ECB pricing to global yield curves, FX, equities and credit.

“The situation has changed,” both in terms of the ECB and likely global term premium as a whole. A clear theme that has developed post ECB is that fixed income is selling off in a parallel way. Front end selloffs are not pulling at longer end yields (bear flattening). Unlike last cycle, where the ECB was a headwind to any hiking cycle scope, they are now turning into a tailwind.