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Bonds News

Investors raise ECB rate cut bets on coronavirus fears

LONDON, Feb 24 (Reuters) - Euro zone money markets on Monday priced in around a 50% chance that the European Central Bank will cut interest rates by 10 basis points in July, in a sign of increased concern that the spread of coronavirus will hit the euro zone economy hard.

Italy raced on Sunday to contain the biggest outbreak of coronavirus in Europe, sealing off the worst affected towns and banning public events in much of the north.

The difference between the overnight and forward Eonia interest rates - bank-to-bank interest rates for the euro area that provide some indication of how investors view the ECB rate trajectory - imply roughly a 50% chance of a 10-basis-point rate cut is factored in by July.

That is up from around 35% a week ago.

It also marks a sharp turnaround in market rate expectations from the start of 2020, when a stabilisation in the economic data had led to a view that perhaps the ECB could be encouraged to start raising rates from next year. (Reporting by Dhara Ranasinghe Editing by Tommy Reggiori Wilkes)

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