Bloomberg 7/29/22

Treasury Yields Bounce as Traders Reminded of Inflation Risks

A combination of data showing an ongoing acceleration in US inflationary pressures and commentary from a Federal Reserve official helped draw a line, for now, under the recent plunge in Treasury yields.
The yield on two-year Treasury notes climbed as much as 9 basis points to 2.95%, before moving back to around 2.91%.
Already up on the day, the rate climbed to a session high after data from the US personal income and spending report showed the PCE deflator -- a gauge that the Fed watches -- climbing 1% month-on-month, more than the 0.9% median estimate of economists. Earlier, Atlanta Fed President Raphael Bostic said the US economy was “a ways” from entering a recession and the central bank had further to go in raising interest rates to get inflation under control.

FOMC Statement

We anticipate that ongoing increases in target range increases for the federal funds rate will be appropriate. The pace of those increases will continue to depend on the incoming data and evolving outlook for the economy. Today's increases in the target range is the second 75 basis point increase in as many meetings. While another unusually large increase could be appropriate at our next meeting. That is a decision that will depend on the data we get between now and then.

Bloomberg 7/27/22

Stocks Surge, Bond Yields Sink on Powell’s Remarks: Markets Wrap
Powell says unusually large hike to be data-dependent
Fed to offer less ‘clear guidance’ on rate moves

Stocks rallied and bond yields tumbled after Jerome Powell said the Fed will offer less “clear guidance” on rate moves and that it will likely be appropriate to slow rate hikes at some point.
The Federal Reserve’s boss said the central bank is moving “expeditiously” when it comes to dealing with price pressures and reassured it has the tools to do the job. Powell also noted that another unusually large boost in rates would depend on data after officials raised rates by 75 basis points for the second straight month.
Expectations for the pace of Fed rate increases eased back -- with swap markets showing around 58 basis points of tightening priced in for the next meeting in September and the expected peak for the cycle dropping to around 3.3% -- with that kind of level seen toward the end of this year or early in 2023.

Chair Powell press conference

There's so much uncertainty. These aren't normal times. There's significantly more uncertainty about the path ahead and ordinarily it's quite high. The only data point I have for you is the June SEP, which, I think, is just the most-recent thing the economy's done. Since then, inflation is coming higher at economic activity, coming in weaker than expected, but at the same time, I'd say that's probably the best estimate of where the committee's thinking, which is still that we'd get to a moderately restrictive level by the end of this year. Somewhere between 3 and 3.5% and where the committee sees further rate increases in 2023. We'll update that at the September meeting, but that's really the best I can do on that.

Bloomberg 8/18/22

Schnabel Flags Big ECB Hike Ahead Amid Strong Inflation
Several indicators suggest ‘elevated risk of de-anchoring’
Markets are betting on 50 basis-point hike in September

The inflation outlook hasn’t improved since the European Central Bank raised rates by half a point in July, Executive Board member Isabel Schnabel said in a Reuters interview, suggesting that another hike of similar magnitude may be coming next month.
Price pressures won’t vanish quickly and might in fact accelerate further in the short run, Schnabel said. While most gauges of inflation expectations remain anchored, she warned that “a number of indicators are pointing toward an elevated risk of de-anchoring.”
In September, “any decision is going to be taken on the basis of incoming data,” she said. “If I look at the most recent data, I would say that the concerns we had in July have not been alleviated.”
Schnabel’s remarks are the most concrete yet about the ECB’s future interest-rate path after policy makers decided last month to no longer flag the size of upcoming hikes. A worsening inflation outlook prompted officials to act more forcefully at their last meeting than they previously communicated, triggering a debate about the merit of precomitting when uncertainty is high.

Bloomberg 7/25/22

The European Central Bank may not be done
with big increases in interest rates after surprising with an
initial half-point hike last week, according to Governing
Council member Martins Kazaks.
“I would not say that this was the only front-loading,”
Kazaks, one of the ECB’s most-hawkish officials, said in an
interview in Frankfurt. “I would say that the rate increase in
September also needs to be quite significant.”

Bloomberg 7/25/22

The European Central Bank will follow a
step-by-step approach in raising borrowing costs, according to
Governing Council member Ignazio Visco.
“We will see depending on data how to go on, but this does
not mean that we are not going to proceed in a gradual way,” the
Italian central bank governor said in an interview with
Bloomberg Television. Gradualism “means moving step by step, not
being very slow.”
He added that “there is no way now to say now” whether the
ECB’s next step should be a quarter-point or half-point
increase.

Bloomberg 7/25/22

European Central Bank President Christine Lagarde said interest rates will be increased as much as is required to bring inflation back to 2%.
“We are sending a clear message to companies, employees and investors: inflation will return to our target value of 2% in the medium term,” she said in an op-ed for Germany’s Funke Mediengruppe. Measures taken so far “are already having an impact on interest rates across the euro area.”
The comments come a day after the ECB raised rates more than expected, ending eight years of negative interest rates to fight inflation that hit 8.6% in June and is expected to accelerate further. The 50 basis-point hike brought the deposit rate to 0%, ending eight years of negative rates. Investors see about 113 basis points of addition ECB rate increases by year-end, according to market bets.
“We will raise interest rates for as long as it takes to bring inflation back to our target,” Lagarde added. The Governing Council will “decide on the right pace for our next steps based on the newly available data.”

Bloomberg 7/21/22

ECB Raises Main Refinancing Rate By 50BPS to 0.5%; Est. 0.250%

European Central Bank raised its main refinancing rate more than economists expected.
Main refinancing rate raised to 0.5% (estimate 0.250%)
38 of 46 economists in Bloomberg's survey expected 0.250%

Dow Jones 7/21/22

ECB Surprises as It Hikes Interest Rate by Half Percentage Point

The European Central Bank announced a larger-than-expected interest-rate increase of half a percentage point and outlined a new plan to buy the debt of Europe's most vulnerable economies, taking bold action to protect the currency union as it navigates the twin threats of skyrocketing inflation and slowing economic growth.
The ECB's surprise move on Thursday takes its key interest rate to zero and ends the bloc's controversial eight-year experiment with negative interest rates.
It suggests that the bank's top officials are increasingly concerned about the threat of persistently high inflation in the eurozone. Officials had telegraphed for weeks that the bank would likely raise rates by only a quarter percentage point this month.
The ECB said it would continue to increase rates toward a more normal level. It also said it had created a new bond-buying program, known as the Transmission Protection Instrument, which will ensure that the bank's interest rates are transmitted smoothly across the currency union. The scale of purchases under the new program will depend on the severity of the risks, the ECB said.

Bloomberg 7/21/22

The euro rallied and European bonds extended declines after the European Central Bank raised rates by 50 basis points.
German 2-year yields rise 17bps to 0.78%

Reuters 7/19/22

European Central Bank policymakers are considering raising interest rates by a bigger-than-expected 50 basis points at their meeting on Thursday to tame record-high inflation, two sources with direct knowledge of the discussion told Reuters.
To cushion the impact of the higher borrowing costs, policymakers are also expected to announce a deal to help indebted countries like Italy on the bond market. The deal will require they stick to European Commission rules on reforms and budget discipline, the sources said.

Bloomberg 7/19/22

The euro jumped to a two-week high and
short-dated bonds slid across Europe as markets priced in a more
aggressive pace of interest-rate hikes from the European Central
Bank.
The common currency rose more than 1.2% after reports that
ECB policy makers may consider a 50-basis-point rate hike at
their meeting on Thursday, larger than the quarter-point move
signaled in June.
That led money markets to bet on almost 50% odds of a half-
point hike this week and more than a percentage point by
September. Shorter maturity bonds led a selloff, with German
two-year yields -- among the most sensitive to changes in policy
-- surging as much as 12 basis points to 0.64%.

Bloomberg 7/14/22

Federal Reserve Governor Christopher Waller said he supports a three-quarter percentage-point increase in the benchmark lending rate later this month after seeing the latest jump in the consumer price index, but could vote for more aggressive action if coming economic reports point to further inflation risks.
“With the CPI data in hand, I support another 75 basis-point increase,” Waller said Thursday in remarks to a Global Interdependence Center event in Victor, Idaho.
While the CPI figures were a “major league disappointment,” Waller stressed that his vote is contingent on additional data due before the July 26-27 Fed policy meeting, citing retail sales and housing.
“If that data come in materially stronger than expected it would make me lean towards a larger hike at the July meeting to the extent it shows demand is not slowing down fast enough to get inflation down,” said Waller, who will answer questions from Bloomberg’s Michael McKee following his prepared remarks.

Bloomberg 7/17/22

An oil-price cap initiative to mitigate global inflation
while punishing Russia over what she calls “horrific
consequences” of the war in Ukraine has been high on the agenda
for US Treasury Secretary Janet Yellen, but a non-starter for
others like China and India. Indrawati said she will discuss the
proposal with Indonesia’s energy-related ministries.
Treasury said in a statement Yellen held a number of
bilateral meetings including sessions with Saudi Arabia’s
Finance Minister Mohammed Al-Jadaan, Australian Treasurer Jim
Chalmers, South African Minister of Finance Enoch Godongwana and
Singapore’s Deputy Prime Minister Lawrence Wong. The statement
didn’t include details with how ministers responded to Yellen’s
appeal on the oil price cap.

Reuters 7/21/22

Lavrov said geographical realities had changed since Russian and Ukrainian negotiators held peace talks in Turkey in late March that failed to produce any breakthrough.
At that time, he said, the focus was on the Donetsk and Luhansk People's Republics (DPR and LPR), self-styled breakaway entities in eastern Ukraine from which Russia has said it aims to drive out Ukrainian government forces.
"Now the geography is different, it's far from being just the DPR and LPR, it's also Kherson and Zaporizhzhia regions and a number of other territories," he said, referring to areas well beyond the Donbas that Russia has wholly or partly seized.
"This process is continuing logically and persistently."

Bloomberg 7/10/22

US President Joe Biden and his Chinese
counterpart Xi Jinping are set to speak again in the coming
weeks, Secretary of State Antony Blinken said on Sunday.
Blinken spoke with Chinese Foreign Minister Wang Yi a day
earlier for more than five hours to help lay the groundwork for
a call between the leaders. While Biden said last month he would
speak with Xi “soon,” Blinken suggested it was getting closer.
“With regard to President Xi and President Biden, our
expectation is that they will have an opportunity to speak in
the weeks ahead,” Blinken told reporters during a stop in
Bangkok, Thailand.

Bloomberg 7/9/22

Shorter-dated Treasuries slumped Friday,
sending yields surging, after a stronger-than-expected US jobs
report bolstered the case for bigger interest-rate increases by
the Federal Reserve.
The two-year Treasury yield leaped as much as 13 basis
points to 3.14%, while swaps showed increased odds that
officials will choose to lift the Fed benchmark by 75 basis
points in July rather than 50. Expectations for where the Fed’s
benchmark might peak in the first quarter of 2023 jumped to more
than 3.6% as traders looked ahead to consumer price inflation
data next week.

Bloomberg 7/6/22

*FED OFFICIALS SAW 50 BPS OR 75 BPS HIKE AT JULY FOMC AS LIKELY
*FED MINUTES: `EVEN MORE RESTRICTIVE' POLICY POSSIBLE IN TIME
*FED OFFICIALS RECOGNIZED POLICY COULD SLOW GROWTH FOR A TIME
*MOST FED OFFICIALS SAW GROWTH RISKS SKEWED TO DOWNSIDE
*MANY ON FOMC SAW SIGNIFICANT RISK OF ENTRENCHED INFLATION
*FED: MANY CONCERNED LONG-RUN PRICE EXPECTATIONS COULD DRIFT UP
Treasury Yields Surge as Fed Minutes Underscore Inflation Fight
Yields at session highs after Fed minutes from June arrive
Minutes show inflation worries trump growth concerns

Treasuries extended their losses, driving yields to session highs, after the minutes of the most recent Federal Reserve meeting underscored policymakers’ commitment to tighten monetary policy aggressively to keep inflation from becoming entrenched in the economy.
Benchmark yields rose in mid-afternoon trading in New York, up more than 10 basis points across much of the curve, after the minutes from the June meeting showed officials saw a significant risk of entrenched inflation and that “even more restrictive” policy was possible.
The jumps capped another volatile day in the world’s largest bond market as traders try to navigate between the risks of persistent inflation and a potential recession set off by rising rates.
Yields on two-year Treasury notes -- among those that are more sensitive to central bank policy -- jumped 13 basis points to 2.95%, more than erasing a 6 basis point drop from earlier in the day. The swings mirrored the trading from Tuesday, when 2-year yields swung between a 13-basis-point advance and a 6-basis-point drop before ending the day little changed.
The 10-year higher by 12 basis points at 2.92%. The three-year note led the market selling, pushing the yield up 16 basis points to 2.98%.

New York Times 7/26/22

Pierre Wunsch, a member of the European Central Bank’s Governing Council, said the deposit rate should probably reach at least 1.5 percent.
The European Central Bank should keep raising interest rates to tackle inflation even if the eurozone slips into a recession, said Pierre Wunsch, a member of the bank’s Governing Council and the head of Belgium’s central bank.
Increasing the E.C.B.’s deposit rate to 1.5 percent is a “no brainer,” Mr. Wunsch said, as long as the economy didn’t fall into a “deep recession.” Last week, the bank raised interest rates for the first time in more than a decade, lifting the deposit rate from minus 0.5 percent to zero.

For fifty in sept its the same clip

The bank has been slower to raise rates and end its bond-buying program than other major central banks because much of the inflation in the eurozone has been generated by rising energy prices, exacerbated by Russia’s war in Ukraine, and there was little the bank could do to control those price increases. But as inflation has spread to more goods and services and risks becoming more entrenched in the economy, the bank raised rates by twice as much as it indicated it would last week.
Mr. Wunsch said his preferred course of action given the economic outlook was to raise rates in half-percent increments and then maybe slow down when the deposit rate is closer to reaching 1.5 percent. Last week, the central bank withdrew some of its so-called forward guidance on interest rates, in which central bankers send strong signals to markets about what they plan to do in the future, and said decisions would instead be decided by a “meeting-by-meeting approach.”

Bloomberg 6/23/22

Traders Hedge Fed Cuts in 2023 as Recession Risk Hits Yields

A newfound uneasiness on where US interest rates will be a year from now has started to fester throughout the bond market, as traders seek hedges to cover against an abrupt dovish shift in the Federal Reserve’s policy plans.
With fears of a recession evolving, rates extended their plunge Thursday, taking the three-year Treasury rate down more than 20 basis points to less than 3%. Ominously, traders are also piling into hedges that protect against Fed policy rates not only topping out, but actually being cut back down toward zero as soon as next year.
The moves follow comments from Fed Chairman Jerome Powell on Wednesday which appeared to accept that steep rate increases could trigger a US recession.

Bloomberg 6/24/22

Inflation could remain high until the second half of next year, despite the Federal Reserve’s rate hikes and the after-effects of higher oil prices, according to a blog post published Friday by the New York Fed.
Inflation is accelerating both in the US and the euro area, and the expected path for policy rates has risen sharply in both economies, the researchers say.
Those factors, when combined with the potential for a slowdown in economic growth, add more uncertainty to the outlook for inflation, they say.
“Based on our analysis, we anticipate that inflation will likely remain elevated through the second quarter of 2023, despite payback for the inflationary impact of current negative oil supply shocks during the second half of 2022 and the disinflationary effects of tighter monetary policy,” researchers wrote in the blog post.
Tighter monetary policy alone is not enough to explain the deceleration projected for U.S. inflation over the next year.
“There is an important role for disinflationary payback in the latter part of 2022 for the current inflationary consequences of recent adverse oil supply shocks, driving the downside risk to the forecast,” the post says.
Inflation is projected to ease somewhat in both the US and the euro area, “but will remain elevated by May 2023.” There is a “higher likelihood of a larger-than-expected easing of inflation in the United States compared to the euro area.”

Bloomberg

The Bank of England hiked interest rates for
a fifth straight meeting and sent its strongest signal yet that
it is prepared to unleash larger moves if needed to tame
inflation.
The nine-member Monetary Policy Committee voted 6-3 to
increase rates by 25 basis points to 1.25%, with a minority of
officials maintaining their push for a move double that size.
Still, the BOE hinted that it may join a growing global
trend for larger hikes if inflation continues to soar, saying
“it would be particularly alert to indications of more
persistent inflationary pressures, and would if necessary act
forcefully in response.”
Crucially, that language was endorsed by all the BOE’s
voters, a departure from May when two declined to sign up to
guidance that more hikes were needed.

Bloomberg

“With regard to Italy -- I’m personally of
the standpoint that we should not do too much,” European Central
Bank Governing Council member Madis Muller told Estonian Chamber
of Commerce earlier on Wednesday.
* “We had a situation where the central bank bought up bonds on
a massive scale, including government bonds, resulting in very
low interest rates”
* “If we now end this activity, it is in and of itself expected
that interest rates rise and countries’ real fundamental
indicators start to play a bigger role. So in the case of the
Italy, which has a larger debt burden and a more complicated
outlook, it is logical that interest rates have to rise faster
than in Germany’s case”

Bloomberg

The Federal Reserve raised interest rates by
75 basis points -- the biggest increase since 1994 -- and Chair
Jerome Powell said officials could move by that much again next
month or make a smaller half-point increase to get inflation
under control.
Slammed by critics for not anticipating the fastest price
gains in four decades and then for being too slow to respond to
them, Chairman Jerome Powell and colleagues on Wednesday
intensified their effort to cool prices by lifting the target
range for the federal funds rate to 1.5% to 1.75%.
“I do not expect moves of this size to be common,” he said
at a press conference in Washington after the decision,
referring to the larger increase. “Either a 50 basis point or a
75 basis-point increase seems most likely at our next meeting.
We will, however, make our decisions meeting by meeting.”

Bloomberg

The median prediction of officials was for a peak rate of
3.8% in 2023, and five forecast a federal funds rate above 4%;
the median projection in March was for 1.9% this year and 2.8%
next. Traders in futures markets were betting on a peak rate of
about 4% ahead of the release.

Bloomberg

The Federal Reserve raised interest rates by
75 basis points -- the biggest increase since 1994 -- and Chair
Jerome Powell said officials could move by that much again next
month or make a smaller half-point increase to get inflation
under control.

Bloomberg 6/14/2023

Treasuries curve pivoted around a near unchanged 7-year sector on the day, in a flattening move that saw front- and belly yields cheaper and the long end richer on the day. Both curve and outright yields ended well off the day’s extreme levels that were reached in an aggressive bear flattening reaction to the Fed’s policy decision and update to summary of economic projections.
• The sharp post-Fed reaction was faded however over Fed Chair Powell’s press conference, following some downplaying of the central bank’s economic projections by saying no decision has been made for the next few meetings
• As swaps settled over the afternoon session, a policy peak of around 5.30% was priced for this year, still well below the Fed’s latest end of year projection of 5.625%

Bloomberg 6/21/22

The European Central Bank should exit sub-
zero interest rates in September, Governing Council Member Peter
Kazimir said.
“Negative rates must be history by September,” the Slovak
official told reporters in Bratislava on Tuesday, adding that
there’s a consensus that a half-point hike that month is “highly
probable.”

Bloomberg 6/21/22

The European Central Bank has “good reason”
to start raising interest rates next month, said Governing
Council member Olli Rehn.

“Key ECB interest rates will be raised in July, and a
further rise is expected in September,” Rehn said.
Speaking at a press conference in Helsinki, Rehn said that
next month’s hike will be 0.25 percentage point and that it’s
“very likely” the September step will be bigger than that, given
the outlook for inflation. Gradual increases will then continue,
he said.

Bloomberg 7/6/22

The following is a reformatted version of a
statement published Tuesday on the Reserve Bank of Australia’s
website, after Governor Philip Lowe and his board raised the
overnight cash-rate target to 1.35%.
At its meeting today, the Board decided to increase the
cash rate target by 50 basis points to 1.35%. It also increased
the interest rate on Exchange Settlement balances by 50 basis
points to 1.25%.

Bloomberg 6/21/22

Australia’s central bank chief Philip Lowe
said interest rates are likely to rise by 50 basis points at
most in July, prompting money markets to scrap bets he would
track the Federal Reserve with a 75 basis-point move.

Lowe was asked directly after his speech whether 75 basis
points was on the table and responded that, like this month, the
board would only be considering a rise of 25-to-50 basis points
in July.

Bloomberg 6/2/22

Federal Reserve Vice Chair Lael Brainard said market pricing for 50 bps hikes in June and July seems like a “reasonable” path, and it’s “very hard to see the case for a pause” in Sept.
Brainard speaks in interview on CNBC
If there’s no deceleration in inflation prints, it might well be appropriate to have another meeting where Fed raises rates 50 bps; could also raise by smaller amount
No. 1 challenge is to get inflation down, and Fed will do what’s necessary; she’s looking for a “consistent string of data” showing cooler inflation
Very hard to predict with precision when inflation will come down, but Fed’s tools are starting to have desired effect
“We do expect to see some cooling of a very, very strong economy over time”