MONEY MARKETS – Bets on central bank rate hikes rise as yields rise

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LONDON, January 19 (Reuters)Money market investors boosted their expectations of rate hikes from the world’s major central banks this year, as a relentless rise in bond yields and decades-high inflation figures forced them to revise their forecasts.

Investors now expect the US Federal Reserve to raise interest rates by 25 basis points from March, with a cumulative increase of 105 basis points in rate hikes by the end of 2022, according to Refinitiv data.

Some investors like US founder and CEO of Pershing Square Capital Management, Bill Ackman, are calling on the Fed to raise rates by as much as 50 basis points in March.

This is a remarkable change in pricing from Dec. 1, when markets were expecting just 54 basis points of rate hikes throughout this year.

“The rising bond yields and inflation footprints that we are seeing are causing markets to step up pressure on central banks to raise interest rates and until we see a significant drop in pressures on prices, the momentum is going up,” said Peter McCallum. , rates strategist at Mizuho.

Eurozone money markets advanced their expectations of a 10 basis point hike in interest rates from the European Central Bank through September 2022 compared to the end of this year last month.

Rising bond yields also played a role in rate hike expectations.

Ten-year US Treasury yields approach 1.90% US10YT=RR, their highest levels since January 2020, while German 10-year rates DE10YT=RR exceeded 0% for the first time since May 2019. L1N2TZ0FP

Short positions in 10-year US Treasuries have surged in recent weeks and a BoFA Monthly Investor Survey Index highlighted that shorting US Treasuries was among the top three trades in January. .

Still, the market price of no less than four rate hikes from the Fed and BoE isn’t as aggressive as Australia and Canada, where investors expect 124 basis points respectively. and 153 basis points of rate hikes.

Inflation in Canada is expected to have hit a 30-year high of 4.8% in December, while inflation in Britain rose faster than expected to hit a near 30-year high in December. L8N2TZ1E1

Money Market Pricinghttps://tmsnrt.rs/3KA8lGi

(Reporting by Saikat Chatterjee; editing by Emelia Sithole-Matarise)

(([email protected]; +44-20-7542-1713; Reuters Messaging: [email protected]))

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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