When the European Central Bank signalled that its next likely rate move would be upwards, it triggered a sharp shift in interest rate expectations. The euro swaps yield curve dramatically inverted between the two-year and 10-year maturities shortly thereafter – the first time for benchmark European yields since the early 1990s.
“A lot of this interest rate move is a fundamental reversal, an unwinding of the market’s mispricing of where policy rates would go,” says Mark Schofield, head of interest rate strategy at Citi.
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