Earnings Call, Conference Presentation
Policy Derby: Rates for the Roses
- Markets may price at least one Federal Reserve rate hike within the next 12 months regardless of immediate delivery, potentially shifting from flat expectations to pricing in higher rates and causing the two-to-five-year yield curve to flatten.
- The European Central Bank is anticipated to execute two rate hikes in June and July, with front-end yield curve movements expected to drive bear flattening scenarios amid higher oil prices.
- The Bank of England is projected to signal a dovish profile with rate cuts expected next year, which would likely cause the SONIA yield curve to flatten and could trigger favorable market reactions.
- The Bank of Canada is forecast to hold rates through the remainder of the year despite a shift from potential cuts to multiple hike expectations, with rates potentially realizing lower than current market pricing of two hikes in 2026 and three in the second half of the next year.
- The Bank of Japan is viewed as behind the curve, with a likely June rate hike to coordinate with the Ministry of Finance, though this may be insufficient compared to an earlier April move; reliance on FX intervention alone is seen as inadequate to stop Yen depreciation and may deplete foreign exchange reserves.
- The Reserve Bank of Australia is expected to deliver a rate hike, where hawkish communication could cause the front end of the yield curve to sell off by 15 to 20 basis points, while a cautious "wait and see" approach or no hike could rally the market by 15 to 20 basis points.
- The Federal Reserve is expected to maintain a supply-driven regime, resulting in more stable U.S. money market rates compared to the euro, sterling, and Canadian dollar, and a low dollar funding environment that limits the cheapening of U.S. asset swaps.
- The upcoming U.S. Treasury refunding is expected to maintain unchanged coupon sizes.