ECB will ‘probably go faster than people expect’ on rates

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The ECB will probably rise interest rates at rate quicker than most investors anticipate, says Neuberger Berman European high yield fund manager Andrew Wilmont, as markets fret about the central bank’s bond buying programme winding down.

Speaking on interest rates in Europe, Wilmont says: “It’ll probably go faster than people expect. That is a risk, say you’re in long-dated government bonds.”

Without wanting to predict a date for when any rate rise might occur, Wilmont says it would be a risk to presume it was off the table for “two years plus”.

“People tend to continue trends that exist now. We don’t foresee risks in the moment, something comes from left-field suddenly,” Wilmont says.

His comments come as bond yields jump on reports that the central bank is considering reducing its bond purchases in €10bn increments, contrasting with expectations that it would extend the programme beyond its March 2017 deadline.

Policymakers have an “informal consensus” to taper asset purchases, according to anonymous sources quoted by Bloomberg on Tuesday.

Ten-year government bonds for Germany have jumped approximately 6 basis points on the news to -0.03 per cent, while Spanish and Italian 10-year bonds initially jumped 10bps before pulling back.

“In Continental Europe investors do need to realise bonds in general, whether it’s government bonds or otherwise, they do have a risk. They’re not risk-free, something can go wrong,” Wilmont says.

The ECB’s headline rate remains at zero per cent, the deposit rate at negative 0.4 per cent and the marginal lending facility at 0.25 per cent.