The terminal rate has increased to 3.56%, up from 3.44% prior to the meeting, and expectations of further policy easing have decreased to below 90bp from the peak interest rate expected by the end of 2024.[0] Real rates, as a measure of financial conditions, have been at the higher end of the range that began in December.[0] Economists have suggested that, following March, the European Central Bank (ECB) could raise the deposit facility rate to 3.5%, by increasing it by 25 basis points at each meeting up until June.[0] The market has advanced further than that, yet progressions in the US have aided the hawks and it is unlikely that they could have accomplished this accomplishment without it.[0]
High beta fixed-income markets, which are not as highly rated as their peers, are still basking in the glory of their moment in the spotlight.[1] In 2022, the expectation of stricter monetary policy caused shares to drop and the divergence between credit spreads to increase, which stands in stark contrast to the present.[2] The current increase in core rates due to improved economic outlook is the appropriate type of tightening according to theory.[1] Lorie Logan of the Dallas Fed stated that if necessary, rates could be increased “to respond to changes in the economic outlook or to offset any undesired easing of financing conditions”.[2] The Federal Reserve would increase interest rates in order to slow down economic and/or financial market expansion.[2] It appears as if Goldilocks has been shouldering the responsibility of market sentiment since January, according to us.[2]
The remarks of theirs corresponded with a US January PPI release that was higher than had been predicted, and thus drove 10-year US Treasury yields up by an additional 6-7 basis points.[3] At 3.89%, the US 10-year yield is now the highest since November.[4] The higher rates for longer thesis has also seen some substantial re-pricing of the Fed curve this month where market pricing for the December 2023 Fed Funds rate has risen to 5.10% from 4.35%.[4] Two weeks ago, financial markets estimated that there would be one more interest rate hike and two cuts during the year; however, now the markets are predicting a possibility of four rate hikes. There has been a notable change in rates.[5] In a span of only two weeks, the yield on the two-year US Treasury has increased from 4.1% to[5] The 10-year rate is now higher than 3.9%, its highest since November, rising from below 3.4% since the beginning of February.[0] December 2023 Fed Funds implied rate has risen to 5.10% from 4.35%.[5]
0. “Rates Spark: Crucial Levels Ahead | MENAFN.COM” MENAFN.COM, 16 Feb. 2023, https://menafn.com/1105583870/Rates-Spark-Crucial-Levels-Ahead
1. “Rates Spark: Higher For Longer Hits Selectively, For Now” MENAFN.COM, 15 Feb. 2023, https://menafn.com/1105576839/Rates-Spark-Higher-For-Longer-Hits-Selectively-For-Now
2. “Rates Spark: Higher for Longer Hits Selectively, for Now” Investing.com, 15 Feb. 2023, https://www.investing.com/analysis/rates-spark-higher-for-longer-hits-selectively-for-now-200635366
3. “FX Daily: Hawks In The Ascendancy | MENAFN.COM” MENAFN.COM, 17 Feb. 2023, https://menafn.com/1105590982/FX-Daily-Hawks-In-The-Ascendancy
4. “FX Daily: Hawks in the ascendancy” ING Think, 17 Feb. 2023, https://think.ing.com/articles/fx-daily-hawks-in-the-ascendancy
5. “Fed hawks circle” FXStreet, 17 Feb. 2023, https://www.fxstreet.com/analysis/fed-hawks-circle-202302170900