Beyond the Headlines | 20 Oct 2023

An earlier ECB pivot presents yield curve opportunities

Javier Corominas

Director of Global Macro Strategy

Our latest video for asset managers

As term premia reprice higher, a modest increase in duration is warranted, however, we think the opportunities lie at the end short end of the curve.

In this week’s Beyond the Headlines, join Javier Corominas, Director of Global Strategy, to look at the why ECB pricing and eurozone yield curves may be mispriced.

Click here to check out previous Beyond the Headlines episodes.

I’m Javier Corominas, Head of Global Macro Strategy here at Oxford Economics. Term premia has been on the rise recently and while no single factor can explain the move higher, we think a combination of factors are probably at play. We think news of increased coupon sizes has already been digested by the market, and the end of Japan’s YCC policy is a slow burn issue really tightly managed by the Bank of Japan for now.

True, 5y5y inflation expectations remain above central bank target rates, but they have been stable for months. In fact, we think the curve repricing higher is as much a term premia story as a real rate adjustment story. And at 2.4% these real rates are well above US trend growth rate over the medium term. However, we think the opportunities lie elsewhere at the shorter end of the curve and in the eurozone.

We think the higher for longer mantra that the market is extrapolated to the eurozone from the US is misplaced. Yes, core inflation will remain sticky over the next few months thanks to services inflation remaining high. But leading indicators do suggest a softening of the eurozone labor market going into 2024. Furthermore, still falling wholesale and electricity gas prices will keep inflation trending down over the next three months.

And we think more importantly that the market consensus and the ECB have not factored in these dynamics. Where we think inflation will hover around 2% next year rather than the above 3% priced in by markets. So we think we have an opportunity here in two year German yields where we see them dip sustainably below 3% as we move into 2024 and we also think a bull steepening of the German curve is warranted.

Together, these are two key non-consensus trades going into next year.


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Meet the team

Innes McFee
Innes McFee

Managing Director of Macro and Investor Services

+44 (0) 203 910 8028

Innes McFee

Innes McFee

Managing Director of Macro and Investor Services

London, United Kingdom

Innes McFee is the Managing Director of Macro and Investor Services, based in London. Innes oversees the activities of the Macro & Investor Services teams globally, including the Global Macro Forecast and Global Macro Service.

Innes joined Oxford Economics in 2017 after 6 years at Lloyds Banking Group as a Senior Economist. At Lloyds Innes was responsible for the economic scenarios underpinning the Group’s internal planning and stress testing; analysis of key risks; and developing Lloyds’ approach to multiple economic scenarios for IFRS9. In addition, Innes’ role included developing the Group’s capability in modelling macroeconomic fundamentals and UK banking markets and advising the Group Corporate Treasury on financial market developments.

Prior to joining Lloyds Innes was an Economic Advisor at HM Treasury where his roles included management of the UK’s foreign currency reserves; US economist; and G20 macroeconomic policy advisor. Innes has a first class undergraduate degree in Economics from the University of Durham and a MSc in Economics from Warwick University.

Javier Corominas

Director of Global Macro Strategy

+44 (0) 203 910 8115

Javier Corominas

Director of Global Macro Strategy

London, United Kingdom

Javier Corominas is Director of Global Macro Strategy at Oxford Economics. He is co-responsible for global strategic asset allocation as well the tactical calls across all asset classes. Additionally, he has a significant focus on providing thematic macro strategy research to generate actionable investment advice for asset allocators, portfolio managers and corporate Treasurers.

Javier is a senior macro and multi-asset investment strategist with over 16 years’ experience in active portfolio management as well as in independent macro research.

He has a background in macro-economic modelling and forecasting, portfolio optimization and risk budgeting, asset allocation (SAA and TAA), relative value models and global thematic investment research. This is coupled with a demonstrable track record in drawing conclusions for key asset markets, and developing profitable trade and investment strategies in FX, rates and the liquid asset classes.

Prior to re-joining Oxford Economics, he was a Director and Head of Research at Record Currency Management, one of the largest institutional currency managers in the world, with pension funds, insurance companies, family offices and private equity houses as clients globally.

Javier is regular commentator on currency, fixed income and broader global macro themes in the financial media/press and a regular speaker and presenter at global investment conferences and fora.

Javier holds both a First-Class Degree and an M. Phil in Economics from Cambridge University. He has a keen interest in world history and all manner of racquet sports, and is also fluent in Spanish and French.

Conor Nevin

Director, Business Development

+1 917 746 9627

Conor Nevin

Director, Business Development

Dublin, Ireland

Conor Nevin is a Senior Director and Head of Asset Management Sales in the US East Coast, and UK & Ireland territories.

Prior to joining Oxford Economics in 2019, Conor worked at another leading provider of macroeconomic research, Capital Economics, where he managed the North American Sales Teams for five years. Conor’s experience before entering the world of economic research is in financial services, providing investment and financial planning advice to clients in Ireland.

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