European Central Bank officials are still banging the inflation drum and suggesting interest rates must keep rising, but there’s enough nervousness about banks or a possible policy misstep to mean they face an uphill battle convincing markets.

Having firmly scaled-back rate expectations amid last month’s market turmoil, investors no longer expect borrowing costs to stay higher for longer and are cautious about pricing in a deposit rate above 4%.

Ahead of the ECB’s May 4 meeting, pricing for where rates will peak remains well below levels of just over 4% seen in early March, before the collapse of two regional U.S. lenders and the forced takeover of Credit Suisse triggered a rush into safe-haven assets.

“What happened (with the market turmoil) is a reminder that hiking cycles usually get stopped out abruptly because of unforeseen fragilities,” said BofA strategist Erjon Satko.

As well as fretting about other potential skeletons in the banking sector’s closet, investors are worried about what effect the quickest rate-hiking cycle since the adoption of the euro will have on the 20-country currency bloc’s economy.

A BoFA survey on Monday showed fragile financial markets and sticky inflation are top concerns among investors, who have lifted bond allocations to the highest since March 2009.

The November 2023 ECB euro short-term rate (ESTR) forward rose to 3.65% on Wednesday, implying expectations for a deposit rate of around 3.75%.

BofA said late last week it had closed its short September 2023 Euribor position, arguing it would be difficult for the market to price in a terminal rate above 3.75% without more confidence that the ECB will hike by another 50 bps in May.

Citi meanwhile argued that the June ESTR or money market contract was less appealing from a hedging standpoint while markets were pricing a peak of 3.75%.

Earlier this year, it took a month of hawkish rhetoric from ECB policymakers and robust February inflation data to convince markets the central bank was ready to raise rates above 4%.