…while the market direction becomes hazier for now.
- US & European policymakers have pushed back on the narrative around imminent rate cuts.
- Bonds markets have given back most of the sharp gains achieved at the end of 2023.
- The macro economy continues to exhibit strength and the road to lower inflation is likely bumpy.
- Unsurprisingly, geopolitical risk has ratcheted higher at the start of 2024.
Government bond yields moved higher over the past week, as key Federal Reserve (Fed) officials and European policymakers continued to push back on expectations for imminent rate cuts. US 10-year yields have retraced nearly all the moves lower since the last Fed meeting, and a March rate cut is now firmly in the balance.
Given the degree to which the market had front-run central bank actions, and with positioning surveys skewed to investors’ strong bias for owning duration, the scope for further disappointment over the coming weeks remains elevated.