“The rates are rising more and more in Europe! » Editorial by Charles SANNAT

“The rates are rising more and more in Europe!  » Editorial by Charles SANNAT

My dear impertinents, dear impertinents,

It is necessary to regularly monitor the evolution of interest rates in Europe and in particular in the euro zone. Let’s take a quick look at this weekend to see what is happening in this period of sharp increases in key rates by the central banks.

Eurozone government bond yields hit new multi-year highs after the US Federal Reserve was joined by three European central banks in raising rates on Thursday, with the Fed indicating a stronger-than-expected tightening path during future meetings.
The Fed expects its key rate to rise faster and higher than expected, the economy slowing and unemployment rising to levels historically associated with recessions.

Other central banks continue to hike rates, with the Bank of England raising its key interest rate by 50 basis points (bps) as expected. The Swiss and Norwegian central banks also raised rates on Thursday. »

Everywhere, around the world and in Europe in particular, central banks are raising rates after years of zero rates, and even negative rates in much of the world.

European rates that the ECB will push up to 2.9% in 2023!

“Money markets are pricing the probability of an ECB rate hike of 75 basis points in October at around 85%, while the ECB’s ESTR overnight index swap points to a peak in September 2023 at around 2.9%.

ECB officials continue to deliver hawkish messages, with board member Isabel Schnabel saying the eurozone is facing an economic slowdown, but inflation is still far too high, so interest rates interest must continue to increase.

10-year rates are well above 4% in both Italy and Greece.

Here are some numbers.

10-year Greek: 4.72%

10 year Italian: 4.16%

10 years spanish: 3.12 %

10-year Portuguese: 2.97%

10 year French: 2.54%

10-year German: 1.96%

The “spread”, that is to say the difference in rates between Germany, the best student in the euro zone, and Italy, at the back of the pack, is 2.76… this is starting to create a visible risk premium on Italy versus Germany! A good gap, but not yet critical and which does not indicate that the Italian debt would be specifically attacked by the markets. Even the Italian elections with the extreme right at the gates of power do not seem to move the markets which for the moment are relatively calm and do not speculate on the Italian debt.

Will this remain stable with the markets “buying” the message from the ECB which said it would intervene to support the euro and sovereign debt if necessary? Is this the calm before the storm? Very difficult to say. This is why we must constantly keep an eye on the famous 10-year rates of the major countries of the euro zone and watch the evolution of the rate differentials between all these countries.

It is already too late, but all is not lost.

Prepare yourselves !

Charles SANNAT

“Insolentiae” means “impertinence” in Latin
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