My dear impertinents, dear impertinents,
It is necessary to constantly monitor the evolution of interest rates in Europe and especially in the euro zone. Let’s take a quick look at this weekend to see what happened during this period of dramatic increases in key rates by central banks.
Eurozone government bond yields hit new multi-year highs after the US Federal Reserve joined three European central banks in raising rates on Thursday, with the Fed signaling a more robust rather than the expected tightening path in future meetings.
The Fed expects its key rate to rise faster and higher than expected, the economy is slowing and unemployment is rising to levels historically linked to recessions.
Other central banks continued to raise rates, with the Bank of England raising its key interest rate by 50 basis points (bps) as expected. The Swiss and Norwegian central banks 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 most of the world.
European rates that the ECB will push up to 2.9% in 2023!
“Money markets have priced the probability of an ECB rate hike of 75 basis points in October at around 85%, while the ECB’s ESTR overnight index swap points to a peak in September 2023 by almost 2.9%.
ECB officials continued to deliver hawkish messages, with board member Isabel Schnabel saying the eurozone was facing an economic slowdown, but inflation was still too high, so interest of interest should continue to increase.
10-year rates are above 4% in Italy and Greece.
Here are some numbers.
10-year Greek: 4.72%
10-year Italian: 4.16%
10 years Spanish: 3.12 %
10 years Portuguese: 2.97%
10 years French: 2.54%
10-year German: 1.96%
The “spread”, which is to say the difference in rates between Germany, the best student in the euro zone, and Italy, at the back of the pack, is 2.76 … it starts to make a visible risk premium in Italy against Germany! A good gap, but not yet critical and that does not indicate that the Italian debt will 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 currently relatively calm and do not think about the Italian debt.
Will it remain strong with markets “buying” the message from the ECB that it will intervene to support the euro and sovereign debt if necessary? Is this the calm before the storm? It is very difficult to say. This is why we must always monitor the famous 10-year rates of the major countries of the euro zone and look at the evolution of the rate differences between all these countries.
It’s too late, but all is not lost.
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