Rates Steepen as Middle East Remains in the Spotlight

Rates jump higher as Israel-Hamas diplomatic efforts continue. Swap rates and UST yields bear steepened today after global authorities, including Putin with the leaders of Egypt, Syria, Iran, and the Palestinian Authority, discussed potential routes forward for the Middle East. The action saw the 2-year UST yield peak above and finish at 5.10%, a 4bp move higher on the day. Meanwhile, the long end of the curve rose as many as 10+ bps, while major equity indices rose.

Economists expect ECB to hold rates high until late 2024. A recent Bloomberg survey of economists showed that the majority see the ECB holding peak rates until September 2024, a change from the prior survey when most saw rates being lowered in March. These results are in line with recent comments from ECB officials at the IMF’s recent annual meeting, where they said that current economic projections don’t support a cut in 1H24. Rising European bond yields are being viewed as a sign that investors are accepting an extended period of higher rates to bring inflation back to 2%.

Retail sales ahead. Tomorrow’s slate will feature retail sales, which is expected to decline from 0.6% in August to 0.3% in September. A slowdown could illustrate the effects of rate hikes at work, especially important after the last two months’ figures were well above forecasts. Meanwhile, today’s Empire Manufacturing data (-4.6) beat forecasts, though the level was a significant slowdown from September.