Chart of the week
The outbreak of war in Ukraine caused rates to fall in the safest segments of the bond market from February 24 to March 4. This trend has been reversed since March 7, leading to a resumption of the upward movement initiated in 2021. Sovereign 10-year rates have thus returned to their highest levels since 2018 in Europe, and since 2019 in the United States.
Economic uncertainties related to the Russia-Ukraine conflict initially led investors to anticipate a more moderate monetary tightening by central banks. In Europe, expectations of an ECB rate hike in 2022 have momentarily waned. In the United States, the arrival of the war led the Fed to raise its rates by only 25 basis points in March, compared to the 50 basis points expected before the conflict.
Since then, the situation has been reversed as energy (oil, gas) and food (wheat, corn) prices have risen sharply. These movements reinforce the inflationary outlook despite already high levels: in February, 12-month inflation reached 7.9% in the United States and 5.9% in the Eurozone. Investors are therefore once again expecting rapid monetary normalization by central banks. The majority of them anticipate at least 8 rate hikes (of 25 basis points each) by the Fed in 2022, and 1 to 2 rate hikes by the ECB this year after the end of quantitative easing.
See also: https://latribune.lazardfreresgestion.fr/en/risk-free-bonds-historic-losses-in-the-united-states/
The opinion expressed above is dated March 25, 2022 and is subject to change
*Sources : Bloomberg and calculation from Lazard Frères Gestion
As of : March 25, 2022
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