Jefferies Expects One Fed and ECB Rate Hike in December

what happened

Jefferies keeps its bullish view on five-year bond yields ahead of this week's central bank meetings, Market Talk reports, citing a note from global economist Mohit Kumar. The bank believes central banks will not deliver as many rate hikes as markets currently price in.

Like most of the market, Jefferies does not expect a hike from the Federal Reserve on Wednesday or from the European Central Bank on Thursday. Kumar expects one increase in December. “Our base case is that by the March meeting oil prices will have started to fall, and there will be no need to hike anymore,” he says.

why it matters

For markets, this suggests expectations for a deeper tightening cycle could be revised lower, which supports long-dated bonds and weighs on yields. At the same time, T. Rowe Price notes that Fed hiking cycles have often ended above initial expectations, while Pimco sees risks skewed toward fewer ECB hikes, so uncertainty remains high.

market impact

US and euro-area bonds, EUR/USD: fewer expected rate hikes weigh on yields and support bond prices

tags

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