(BFM Bourse) – The yield on the 10-year Bund is currently around 1.976%, while the market anticipates key rate cuts from the European Central Bank next year.
(Correction: a previous version of this article incorrectly indicated that the yield on the 10-year Bund had not fallen below 2% since the end of 2022. This is actually last March)
In the space of a few months, the sovereign bond market has completely turned around. The yield on the 10-year German bond (Bund) illustrates this perfectly. In October, this rate was still flirting with 3%, the highest for many years.
This Wednesday, December 20, the yield on the 10-year German Bund has now fallen back to less than 2% for the first time since last March according to Bloomberg and Reuters, and is currently trading around 1.976%, compared to more than 2% at the fixing. Tuesday.
This movement was driven this Wednesday by reassuring inflation figures in the United Kingdom, with price increases standing at 3.9% over one year in November compared to 4.6% in October.
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Overly optimistic key rate cuts
“The UK inflation figures are contributing to the festive mood in the bond market,” Christoph Rieger, head of rates research at Commerzbank AG, told Bloomberg. “The data adds to growing evidence that global inflation has started to collapse on a broader basis,” he adds.
These figures therefore reassure investors in the idea that inflation is falling almost everywhere in the world and that the major central banks will make key rate cuts next year.
For example, Barclays bank expects the European Central Bank (ECB) to start reducing its rates next April, by 25 basis points (0.25%) before repeat this movement at each meeting until January 2025, when the ECB’s key rate would reach 2.25% compared to 4.5% currently.
For the American Federal Reserve (Fed), investors are counting on rate cuts of between 125 and 150 basis points throughout 2024, according to the CME Group’s FedWatch tool.
“Investors expect rapid easing from central banks next year. But markets seem to have gone too far in pricing rate cuts,” says Mark Haefele, investment director at UBS.
Julien Marion – ©2023 BFM Bourse