Resisting the ECB Is Futile, Bank Analysts Tell Bond Traders

Bank strategists have a simple message for bond traders: it’s not worth trying to take on the European Central Bank.

From Goldman Sachs Group Inc (NYSE:GS) to Bank of America Corp’s (NYSE:BAC) research arm, analysts are telling investors that the recent bond selloff in the region has likely come to a halt thanks to the ECB’s commitment last week to “significantly” step up debt purchases. They’re now recommending a plethora of bullish trades, including wagers on German bunds.

“The bottom line for markets is now simple –- to be short is to oppose the ECB,” wrote NatWest Markets strategists including Giles Gale in a note to clients. “That’s not something to take lightly.”

It’s a marked shift in sentiment. German bonds are fresh off their worst month in more than two years as debt markets across the world were consumed by bets on rising inflation. But with the ECB — the region’s biggest buyer of government securities — now pledging to ramp up its pandemic bond-buying program to avoid a tightening in financial conditions, the selloff looks to have abated.

On Monday, German yield dropped as much as three basis points to minus 0.33%, with bonds across the euro area advancing. The rate had jumped 26 basis points in February, the biggest rise since January 2018.

Goldman Sachs sees the ECB boosting its weekly rate of pandemic bond purchases to around 20 billion euros per week, around 8 billion euros more than the most recent data showed. BofA Global Research recommend that investors buy call options on German bund futures, a position that profits from a large gain