The material on this site is for financial institutions, professional investors and their professional advisers. It is for information only. Please read our Terms & Conditions, Privacy Policy and Cookies before using this site. Please see our Subscription Terms and Conditions.


All material subject to strictly enforced copyright laws. © 2021 Euromoney, a part of the Euromoney Institutional Investor PLC.
Capital Markets

Bond Outlook November 2nd

The ECB will soon raise the refi rate, but will then happen to the euro yield curve? Flattening or an overall rise?

Bond Outlook [by bridport & cie, November 2nd 2005]

How the world has moved on from just a couple of months ago when Asian Central Banks were sustaining the dollar and keeping the yield on the 10 year US bond down. They have now reduced their purchasing, not so much because they have a sudden aversion to the dollar, but because private flows into US bonds of all types are attractive at the higher yields. Manufacturing is proving a lot more resilient in the USA, the UK and the euro zone. Inflation is now assumed to be a serious threat because of high oil prices, which, even if they are off their peaks, are bound to wash through to other goods and services.

 

Interest rates are on the rise, led by the Fed, which obviously has no intention of stopping at 4%. Our recommendation of focusing in USD on index and inflation linked instruments is a means to defend fixed-interest investors against rising yields across the curve. What now, however, is going to happen in the euro zone? Two scenarios can be envisaged, both involving flattening, but of two different types, once the ECB starts lifting the refi rate:

 

  • That the EUR yield curve will echo the development of the USD curve, with the short end rising and the long end remaining low
  • That the EUR yield curve will rise across the board, albeit with the long end moving up more slowly than the short end

 

As of today, we lean towards the second scenario on the grounds mainly that the ECB never went the route of cheap money taken by the Fed, and also that inflationary pressures today are more severe than when the Fed started raising its rate.

You have reached premium content. Please log in to continue reading.

Read beyond the headlines with Euromoney

For over 50 years, our readers have looked to Euromoney to stay informed about the issues that matter in the international banking and financial markets. Find out more about our different levels of access below.

SUBSCRIBE ONLINE TODAY

Unlimited access to Euromoney.com and Asiamoney.com

Expert comment, long reads and in-depth analysis interviews with senior finance professionals

Access the results of our market-leading annual surveys across core financial services

Access the results of our annual awards, including the world-renowned Awards for Excellence

Your print copy of Euromoney magazine delivered monthly

£73.75 per month

Billed Annually

FREE 7 DAY TRIAL

Unlimited access to Euromoney.com and Asiamoney.com, including our top stories, long reads, expert analysis, and the results of our annual surveys and awards

Sign up to any of our newsletters, curated by our editors

LOGIN NOW

Already a user?

We use cookies to provide a personalized site experience.
By continuing to use & browse the site you agree to our Privacy Policy.
I agree