Daily Flows & Commentary BY THE CURVE TEAM –

Daily Flow & Insights – Market’s Expectations for Rate Hikes Back Peddling

Thursday, 23rd June, 2022

Daily Flows

  • Activity picked up again yesterday, albeit at lower rates across the curve as broader market panic eases.
  • We saw some substantial NCD flow, with deposits spread quite evenly across domestic and foreign names. The 3-month tenor as usual was the key area, with margins sitting around +25 from multiple ADI’s.
  • 1-year TD levels have retreated back below 4.00% for the most part, with BBB+ rates sitting around 3.90%. ING attracted some funding at 4.40% for 2-year money.

Market is paring back expectations for monetary policy tightening.

  • The yield curve has been falling as bonds have caught a bid this week on the back of central bank musings.
  • You need to ask yourself, is the market moving because central banks are suddenly less hawkish  or is it moving because the market got ahead of itself?
  • My view is it is much more of the latter rather than the former.
  • Markets have been ramping up expectations for some time and while they were right that central banks have moved earlier than expected, their terminal rate expectations look a little lofty.
  • When Governor Lowe said earlier this week there would be a debate between 25bp or 50bp at the next meeting and 75bp wasn’t being considered, it flagged that this tightening cycle, while being aggressive, won’t keep pace with the market’s prior expectations.
  • Momentum continued as US Fed Chair Jerome Powell was seen as less hawkish than expected.
  • We could well have seen the peak of the curve when it comes to reference rates in this cycle.
  • Outright rates could still go higher as credit spreads continue to widen on the back of acute funding pressures across the market.

Lawrence Vosper, David Flanagan

Curve Team