ET Net News Service, 12th -- The bond market has started to shoulder part of the tightening pressure from global central banks by pushing up borrowing costs on its own, thereby reducing the number of rate hikes central banks need to implement to control inflation.
After weeks of selling, yields have surged to multi-year highs, tightening financial conditions even without further action from policymakers. As a result, traders have lowered their rate hike expectations. Data compiled by Bloomberg shows that since mid-September, the amount of rate hikes priced into swap markets across eight major economies has collectively declined by nearly 200 basis points.
The bond sell-off shows little sign of easing. From the United States to Japan and France, concerns over fiscal spending are prompting investors to demand higher risk premiums. At the same time, a large number of bond issuances related to artificial intelligence (AI) continue to absorb market funds.
Rising borrowing costs are spreading to mortgage and high-yield bond markets, dampening economic activity to some extent and achieving the same effect that central banks would otherwise need to attain through further policy rate hikes.
Barclays strategists said the market has already alleviated some of the pressure on the Fed. "A portion of financial tightening is occurring independently of market expectations for further Fed rate hikes. All else being equal, this should reduce the urgency for the Fed to raise rates, even though its risk management framework remains biased toward further policy tightening." (rc)
After weeks of selling, yields have surged to multi-year highs, tightening financial conditions even without further action from policymakers. As a result, traders have lowered their rate hike expectations. Data compiled by Bloomberg shows that since mid-September, the amount of rate hikes priced into swap markets across eight major economies has collectively declined by nearly 200 basis points.
The bond sell-off shows little sign of easing. From the United States to Japan and France, concerns over fiscal spending are prompting investors to demand higher risk premiums. At the same time, a large number of bond issuances related to artificial intelligence (AI) continue to absorb market funds.
Rising borrowing costs are spreading to mortgage and high-yield bond markets, dampening economic activity to some extent and achieving the same effect that central banks would otherwise need to attain through further policy rate hikes.
Barclays strategists said the market has already alleviated some of the pressure on the Fed. "A portion of financial tightening is occurring independently of market expectations for further Fed rate hikes. All else being equal, this should reduce the urgency for the Fed to raise rates, even though its risk management framework remains biased toward further policy tightening." (rc)
