My dear impertinent, dear impertinent,
It is necessary to regularly monitor the evolution of interest rates in Europe and in particular in the euro zone. Let’s take a quick look at this weekend to see what’s happening in this period of sharp increases in key rates by central banks.
Euro zone government bond yields hit new multi-year highs after three European central banks joined the US Federal Reserve in raising rates on Thursday, with the Fed signaling a further tightening path. stronger than expected during future meetings.
The Fed expects its key rate to rise faster and higher than expected, the economy to slow and unemployment to rise to levels historically associated with recessions.
Other central banks continue to hike rates, with the Bank of England raising its key interest rate by 50 basis points (bps) as expected. The central banks of Switzerland and Norway also raised rates on Thursday. »
Everywhere, around the world and in Europe in particular, central banks are raising rates after years of zero rates, and even negative rates in much of the world.
European rates that the ECB will push to 2.9% in 2023!
“Money markets are pricing in the probability of a 75 basis point ECB rate hike in October at around 85%, while the overnight ECB ESTR index swap points to a peak in September 2023 around 2.9%.
ECB officials continue to send aggressive messages, with board member Isabel Schnabel saying the eurozone is facing an economic slowdown, but inflation remains too high for interest rates to keep rising.
10-year rates are well above 4% in both Italy and Greece.
Here are some numbers.
Greek 10 years: 4.72%
Italian 10 years: 4.16%
10 years Spanish: 3.12%
Portuguese 10 years: 2.97%
French 10 years: 2.54%
10-year-old German: 1.96%
The “spread”, that is, the difference in rates between Germany, the best student in the euro zone, and Italy, in the queue, is 2.76… this begins to create a visible risk premium over Italy. against Germany! A good gap, but not yet critical and that does not indicate that the Italian debt is going to be specifically attacked by the markets. Even the Italian elections with the extreme right at the gates of power do not seem to move the markets, which are relatively calm at the moment and do not speculate on Italian debt.
Will it hold steady with markets “buying” the ECB’s message that it would step in to support the euro and sovereign debt if necessary? Is this the calm before the storm? Very hard to say. That is why we must constantly be attentive to the famous 10-year rates of the main countries of the euro zone and observe the evolution of the rate differentials between all these countries.
It is already too late, but all is not lost.
Get ready!
Carlos Sannat
“Insolentiae” means “impertinence” in Latin.
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