Emerging Markets | Global | Rates | US
DM Rates Summary
• Pressure is growing on the ECB to tighten policy. This could mean a hike this year, and a significant acceleration of the wind-down in net-APP versus previous guidance.
• There has been some concern reported that BTP/Bund spreads are at risk of a blowout. An accelerated end to PSPP would likely increase such fears.
• However, this risk does not appear likely to materialise. The widening so far reflects the global yield rise, and BTP supply net of ECB purchases does not look overly high even with an early to QE.
EM Rates Summary
• Comments that Fed hikes are likely to be a ‘floor’ for Banxico suggests the 7% consensus for the policy rate by year end looks too low.
• Yet market pricing of another 200bps in hikes would take the short-term real rate above Banxico’s estimated neutral range, barring a material move higher in inflation expectations.
• With Mexico in recession and 2022 growth forecasts set to be revised lower we see a more modest 150bps in hikes, taking the policy rate to 7.5%.
DM Rates Summary
• Pressure is growing on the ECB to tighten policy. This could mean a hike this year, and a significant acceleration of the wind-down in net-APP versus previous guidance.
• There has been some concern reported that BTP/Bund spreads are at risk of a blowout. An accelerated end to PSPP would likely increase such fears.
• However, this risk does not appear likely to materialise. The widening so far reflects the global yield rise, and BTP supply net of ECB purchases does not look overly high even with an early to QE.
EM Rates Summary
• Comments that Fed hikes are likely to be a ‘floor’ for Banxico suggests the 7% consensus for the policy rate by year end looks too low.
• Yet market pricing of another 200bps in hikes would take the short-term real rate above Banxico’s estimated neutral range, barring a material move higher in inflation expectations.
• With Mexico in recession and 2022 growth forecasts set to be revised lower we see a more modest 150bps in hikes, taking the policy rate to 7.5%.
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