TechFlow News: On March 6, just one week ago, anyone betting on a European Central Bank (ECB) interest rate hike appeared isolated and paranoid; today, with the threat of war involving Iran jeopardizing inflation trends, this trade has become market consensus. Money market data shows the probability of an ECB rate hike this year has reached 100%, marking a dramatic reversal from last week’s scenario where the odds of a rate cut had exceeded those of a hike. This shift is driving German government bonds toward their worst weekly performance in three years; yield on the interest-rate-sensitive two-year German bund has surged 30 basis points since last Friday’s close, reaching 2.30%.
The speed of this shift in expectations is evident across U.S. and global markets. In the U.S., options traders are increasingly betting the Federal Reserve will abandon any rate-cut plans this year. The 10-year U.S. Treasury yield has surged over 20 basis points to 4.16%, while comparable yields on Australian, Canadian, and UK government bonds have risen by similar magnitudes. Lucile Flight, Managing Director and Head of Rates Trading at Barclays, stated: “The ECB’s sole mandate is price stability. In my view, they will respond decisively—and without hesitation—to energy price shocks.” (Jinshi)
