Rate update: What effect will European QE have on rates

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By G. Steven Bray

For the interest rate market, this week is all about Europe – again. The European Central Bank meets Thurs, and markets are expecting it will announce a full-blown sovereign debt buying program – what here we called quantitative easing.

The interesting thing is the German government still seems to be against such a program. This is despite a favorable ruling by a European court last week. Has the ECB managed to get the Germans on board? We’ll find out Thurs morning.

It’s tough to gauge what effect Thursday’s announcement will have. When QE programs went into effect in the US, rates rose. However, most analysts seem to think that ECB bond buying will be good for US rates. On the flipside, if the ECB announcement disappoints market, as it has many times before, US rates could fall because of increased uncertainty.

It’s hard to believe rates will win either way, but what I think you can expect is some reaction and volatile rate movement. Float cautiously.