• I expect ECB Quantitative Tightening to continue through next year. Money market spread increases will remain linear and proportionate to the decline in excess reserves. We will see significantly more MRO/LTRO borrowing henceforth, but that's by design. The profit-hungry folks at the ECB certainly won't mind;

• The ECB will be able to pull off the rumored Minimum Reserve Requirement increase by year-end. The sooner, the better. Waiting longer increases the risk of money market turmoil, like the unprecedented Eurex repo rate spike this month;

• MRO/LTRO borrowing is predictably concentrated in Italy, where reserve levels are lowest. Regulatory demand for reserves is forcing Italian banks to borrow more from both the rest of the Euro Area and from the Eurosystem;

• Italian Target2 liabilities have fallen significantly and are now much lower than those of Spain. Sell-side calls for an early end to QT by December this year are therefore misplaced. The ECB would end the benign redistribution of reserves to where they are scarcest: Italy. Furthermore, there is no stigma attached to LTRO/MRO borrowing. They are there to be used. And for the Eurosystem to make a profit.

‍