At Any Rate
Global Rates: European rates market update
Jan 8, 2025
Aditya Chordia, Analyst at J.P. Morgan Global Research, joins Francis Diamond to unravel the complexities of the European rates market. They discuss the surge in bond yields and a bearish outlook for 2025, driven by economic divergence in the euro area. The conversation also delves into market volatility, intra-EMU spreads, and the influence of ECB policies. They analyze the expected decline in euro area government bond supply and explore the interconnectedness of the UK and US markets, shedding light on future yield predictions.
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Quick takeaways
- The recent rise in European 10-year bond yields is significantly influenced by improving US economic data and changing macroeconomic fundamentals.
- Despite volatility in intra-EMU spreads following the ECB's meeting, there remains optimism for future carry opportunities amid a hawkish monetary stance.
Deep dives
Rising European Bond Yields
Recent trends show that 10-year bond yields in Europe have increased by over 15 basis points, reaching the highest levels since the previous October. Specifically, the escalation of 10-year gilt yields to multi-year highs indicates a significant shift in market dynamics. This movement is partly attributed to a pronounced correlation with US rates, as improved economic data in the US influences European yields. Analysts suggest that this sell-off reflects not only technical factors but also changing macroeconomic fundamentals, particularly following the ECB's December meeting, where terminal pricing expectations rose significantly.
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