Money markets back to pricing two ECB rate hikes by Dec ’22

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Nov 12 (Businesshala) – Euro zone currency markets on Friday went back on two full European Central Bank rate hikes through the end of next year.

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The bloc’s bond markets, like others, have been volatile in recent weeks, with a focus on whether major central banks will begin raising rates as markets fear inflation is proving less transient than initially expected. Is.

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Following the ECB’s policy meeting in October, markets moved into one 10-basis point (bp) rate hike by July 2022 and two hikes by October 2022, but once more policymakers turned against pricing and the Bank of England. After retreating more strongly, he calmed down. Expected rate hike not given after one week.

But US October inflation numbers came in higher than expected on Wednesday, raising questions about how quickly the US Federal Reserve might need to act.

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After pricing in full ECB increments until September 2022 on Thursday, they moved to pricing in two until December 2022 on Friday.

“It is a cyclical play on inflation going on here. If punters were really scared, we weren’t talking about a 20 bps ECB / 50 bps of a Fed hike,” AFS Group analysts said.

In the broader market, Germany’s 10-year yield, the benchmark for the euro area, was unchanged at -0.23%.

Italy’s 10-year yield was up 4 bps to 1.00% for the first time in a week, pushing the closely watched risk premium paid on top of German bonds above 120 bps.

On Friday, the focus was on inflation.

Euro area price growth will fall below the ECB’s 2% target in 2023, so the conditions for interest rate hikes have not been met, said Lithuanian policymaker Gediminas Simkus.

However, the comments imply that inflation will remain in place for longer than the ECB’s economic projections suggest. They see inflation falling below the 2% target next year.

ECB policy maker and Finnish central bank governor Oli Rehn said on Friday that supply chain bottlenecks that have been crippling euro area growth and driving up inflation will persist through 2022.

Elsewhere, Austria appointed JP Morgan and UniCredit as advisors for an inaugural green bond issuance the following year. (Reporting by Yoruk Bahcelli Editing by Mark Potter)

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