Last Thursday the European Central Bank (ECB) has cut the cost of borrowing by a quarter point, bringing it to new historic low of 1%. A decision justified by the current deep recession and that inflation will remain well below the target level of 2% in 2009-2010 (and negative in summer).

In the subsequent press conference, President Jean-Claude Trichet, has also said that 1% is the lowest level to which you can get an opening which led to lower than expected rate Euribor 3 months. Remains great uncertainty about the arrival of the expansionary policy of the ECB: interest rates still further reduction of 1% or 0.25%? The rate levels OIS (overnight index swap), often used as an indicator to determine market expectations for official interest rates do not provide clear signals for the moment.

Beyond possible new moves downward in Frankfurt, the market is wondering how long you will keep the minimum rate. The fact that we have avoided the worst (the collapse of the financial system) should not be confused with a return to growth in the short term. Regarding Europe, the period of return to a phase of economic expansion is progressively moving forward and therefore the time to increase the cost of money could slip past the first quarter 2010.

The Euribor
The reduction of lending rate to 1% at its meeting last Thursday's ECB and Trichet's words directed not to exclude new monetary easing still favor the downward movement Euribor, which continues to fall in a more rapid and pronounced than expected (1.299% rate at 3 months and the maturity of 0.864% a month fixing on Monday). Also improve the outlook for the rest of the year, with the Euribor 3 months to 1 expected, 15% in summer and mild slope to 1, 30% (the level of today) at year end. As for 2010, improved a little 'objectives for half a year (expected 1, 60%, against 1, 75% at the beginning of May) and also decreases the wait for the end of 2010 (2.10% approximately). Basically in recent weeks is perpetuating the maintenance phase Euribor 3 months below 1, 50%.

The IRS
The ECB cut and open to further rate IRS filings impacted in the short term, including up to 5 years duration. On this stretch of the curve has seen a decline in five years with the IRS at 2.74%. Short deadlines as these are, however, very little used by underwriters of mortgage, subsequent (10-15-20-30 years respectively to 3.56% -3.92% -4.03% -3.89%) were instead moves upward in early May for towing of the state of German government bond yields, which rose considerably with the recent positive trend of bags and huge expectations for next Bund emissions program in 2009 to finance the growth of deficit.

The yield curve IRS accordingly made steeper. The IRS 30 years remains low, and therefore more attractive, it ends 20 years. In recent days the IRS rate expectations have moved slightly upward portend a slow but steady growth of this parameter over the coming years. However, especially for the IRS to 10-15 years is prevalent orientation wait: do not exclude the lowest levels in the short species in response to a trend reflective of the Stock Exchange and any filings Bund yield of 10 years.

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