Cumulative 2022 Fed, ECB, BoE pricing
A large German bank offered this up earlier today as (one of its) FI Charts Of The Day and I thought it worth keeping for posterity sake … since, you know, the end is closer than it appears in the mirror (or so everyone believes — look at stonks),
Cumulative 2022 Fed, ECB, BoE pricing
For the first time this year we are pricing just over 100bp of hikes by both the Fed and BoE during 2022. To be precise, we are pricing 101bp of hikes by the Fed and 109bp by the BoE. Pricing for both is at the most hawkish level so far this year. We are pricing just under 25bp by the ECB. Note that ECB pricing is partly driven by the risk of a mechanical slight drift higher in fixings due to sub-depo TLTRO withdrawal as well as TLTRO repayments and partly due to the risk of an actual hike.
Market pricing is in aggregate above our eco house view (to be precise, the Fed is in line whilst the BoE and ECB are above). We are not inclined to receive 'white' contracts even at current levels given the asymmetric risk-reward (we have been making the case that the Fed should already be at neutral). We prefer expressing our bearish view further out the curve (UST 10y, DBR 30y, GBP 5y5y). This way, (1) we are less dependent on the precise realized tightening path, (2) we aim to capture a modest cheapening of term premia.
For full disclosure, the market instruments we use to plot 2022 pricing in the below chart are (1) FFF3 (January 2023 Fed funds) minus spot, (2) ERZ2 minus spot, (3) SFIZ1-Z2 calendar spread (Sonia futures have recently replaced short sterling futures).
Cumulative hikes priced for 20222 - Just over 100bp for both BoE and Fed, just under 25bp for ECB
What isn’t on the chart may be as MORE interesting, given the PBoCs recent warning to JPOW and slashing of rates … Cutting rates like, Crazy Eddy