ABN AMRO: What Is Going On In The Bond Markets?

ABM AMRO write “a sharp jump in market interest rate expectations has led to a surge in U.S. and EU rates.”

• “Recent macro data do not justify the move, and inflation expectations have been stable, suggesting the rise in yields is being driven by hawkish central bank guidance.”
• “Longer tenors have seen the biggest rises in yields.”
• “Indeed, the market has been repricing higher policy rates not only for next year but also well beyond.”
• “As such, volatility has moved along the yield curve to the longer-end due to the elevated uncertainty regarding the path of monetary policy and the economic outlook.”
• “However, we continue to expect rates to start to come down by year-end and throughout 2024, on the back of the economic slowdown and continued disinflation.”
• “Underpinning this view is our expectation for a significant rate cut cycle in 2024, with cuts continuing until rates return to more neutral levels.”
• “Furthermore, if the jump in yields continues at this pace, we would expect central bank officials begin to verbally push back against the tightening of financial conditions.”