Money markets are now pricing in a possible interest rate hike by the European Central Bank (ECB) next year, marking the first time such expectations have surfaced since the bank began easing monetary policy. This shift follows comments from a senior ECB member indicating openness to raising borrowing costs. Traders are currently assessing around a one-in-three probability of a 0.25 percentage point increase by December of the coming year.
The increased anticipation of a rate hike has already impacted bond yields. German five-year bond yields experienced a significant increase of nearly 10 basis points as markets reacted to the speculation. Rates on longer-dated German debt have also climbed, reaching their highest levels since 2011, reflecting broader market adjustments to the evolving monetary policy outlook.
In addition to movements in the Eurozone, yields on US and UK bonds have also seen increases. Swap markets are suggesting that the Federal Reserve and the Bank of England may implement fewer interest rate cuts than previously anticipated in the next year. These global market adjustments reflect a reassessment of monetary policy expectations across major economies.
