Repricing central bank policy

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Rates markets monthly review

Fears of a stronger-than-anticipated global economic slowdown have recently seen biased central banks’ wording grow more cautious. In particular, the level of attention to financial conditions has risen. As a result, we’ve witnessed a spectacular re-pricing of policy expectations: The US Federal Reserve (Fed) Funds curve has flattened considerably with 20 December 2018 futures rallying by 40 ticks over the past six months (Exhibit 1). Moreover, expectations of a European Central Bank (ECB) hike have been scaled back by almost eight months. The Eonia curve currently does not imply the initial 10 basis point (bp) hike before summer 2020.