Just three months ago, investors sought nearly two points higher returns to buy US 10-year bonds (t-note) compared to what was requested from the German equivalent loan (Dam, The difference occurred when official interest rates were 3.75-4% in the US and 1.50% in the euro area, ie 2.25 percentage points away. The debt gap between the two countries has narrowed, especially in recent times. It is now down 1.2 percentage points, the lowest seen in the last 27 months, prompting speculation that the value of money will come closer in both sectors.
US and eurozone central banks began raising interest rates last year in the face of rising inflation and will continue to raise them in the coming months. But the fixed income market is already discounting that they will do so at varying speeds starting this week… and in the following appointments. In March, rates in the US could stand at 4.75-5%, while in the Eurozone they could go up to 3%, narrowing the gap by 50 basis points. Roof This year it may reach 5-5.25% on the other side of the Atlantic while this year there is talk of 3.25%.
The environment is favorable for other European bonds to start competing with the US. And is that the rapprochement between the European Central Bank (ECB) and the US Federal Reserve (Fed) can be seen in other fixed-income headlines with even greater risk aversion, which, despite easing at the start of the year, suffered a loss. There is a rebound of profitability in the last days. spanish debt In a decade, without moving, it is trading at around 3.32% of the market, only 0.22% from the US; Since August 2020, it has been so close in just a few days in December.
two other key quotes
irrigated Will step on the brakes this Wednesday, announcing a hike of 25 basis points instead of 50 at the last meeting. The market discounts this slowdown and quite the contrary would be surprising. “However, the central bank will not want markets to misinterpret this more moderate pace of tightening as a sign that a change in monetary policy is on the horizon. In fact, the Federal Reserve will insist that inflation Much remains to be done to bring down the “return to target and for that, monetary policy will have to remain restrictive for a long time,” says James McCann, abrdn economist.
In the opinion of Cristina Gavin, head of fixed income at Ibercaja Gestión, “we will only have to wait until the second half of 2023 or the beginning of 2024 to see the first cut in the intervention rate by the main North American monetary.” authority “.
for his part, he B.C He still can’t seem to slow down at the meeting this Thursday. The institution headed by Christine Lagarde began a rate hike path later in July of last year, and will raise them by a further 50 basis points in both February and March if it follows a planned schedule. This will happen in May when growth may remain at 25 basis points.
“The ECB will hike 50 basis points and reiterate December guidance of at least 50 basis points hike in March. Better growth, very high fundamentals and market prices are no reason for divergence,” they justify from Bank of America, where Consider that “an ECB flamboyant For now it should continue to support the euro, but we expect more volatility in the coming months if headline inflation proves to be on its way.”
euro In fact, there is another important point for the European investor. The common currency has gained 10% over the past three months and hedging against currency risk may be a cost that reduces the unattractiveness that US bonds already provide.