Renuka Fernandez, Senior Rates Strategist at TDS, suggests that in their opinion, the ECB delivered on all fronts to include a cut to all three policy rates, a step up in monthly bond purchases, the introduction of a corporate sector purchase program (CSPP) and the introduction of more attractive funding measures. Key Quotes “We view the immediate market reaction as an overreaction to mis-messaging, and view the measures taken yesterday as providing significant monetary easing. Friday’s price action across rates, currency and risk assets appeared to undo some of the initial ECB reaction as markets finally seemed to appreciate the extent of the ECB measures. We expect 5y EURUSD basis to widen (ie become more negative) from current levels as the measures taken should likely increase EUR issuance, pressuring the basis lower. However, given that the 5y has broken below 50bps (theoretically a floor due to the FX swap lines), we do not see the current levels as attractive in terms of entering the trade. While the Treasury-Bund spread widened on the ECB as we expected, it is not at our 180bp target level. We believe that the spread can widen into the Fed this week. We look for 180bps to initiate a 10y Treasury-Bund tightener.” For more information, read our latest forex news.