Breaking News
Get Actionable Insights with InvestingPro+: Start 7 Day FREE Trial Register here
Investing Pro 0
Ad-Free Version. Upgrade your experience. Save up to 40% More details

Rates Spark: Shaky Grounds

By ING Economic and Financial AnalysisMarket OverviewDec 01, 2021 12:25AM ET
Rates Spark: Shaky Grounds
By ING Economic and Financial Analysis   |  Dec 01, 2021 12:25AM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items

Despite some stabilization, market sentiment is likely to remain shaky into the year-end. The Omicron variant adds to other factors capping bond yields over the coming weeks. The ECB seems relaxed about the upcoming COVID-19 wave but keeps its options open, more than ever.

Markets to remain on tenterhooks

Any news on the Omicron variant has to be taken with the generous helping of salt that befits tentative developments. The simple truth is that it will take weeks to get any form of certainty on the aspects that matter the most—transmissibility and vaccine efficacy.

In this context, it would be understandable if some investors decided to close books early and revert to a defensive risk allocation. The sharp reaction in overnight markets to comments from a Moderna (NASDAQ:MRNA) executive, expecting lower vaccine efficacy against the new variant, is proof that markets keep a negative bias.

Oil has taken Omicron fears on the chin, adding to Bund yield downside

Oil Spot Price
Oil Spot Price

What’s more, while the seriousness of the latest variant may not be known, the measures taken by governments to slow its spread are and are unlikely to be reversed in the coming weeks. They come on top of measures implemented in Europe to combat an already advanced COVID-19 wave.

Add this to the seasonality of previous waves and we doubt there is much scope for sentiment to improve before the end of the year. This makes it all the more likely that year-end distortions, such as collateral scarcity and preference for holding high-rated bonds, will continue to suppress sovereign yields.

The dim near-term outlook should not, however, mask the groundswell of higher inflation. The current COVID-19 wave could conceivably lessen pressure on some central banks to take tightening steps in the near term. For instance, the BoE hike in December might continue to be questioned by markets until the very last minute. Other decisions, such as gradually withdrawing accommodation for the Fed and the ECB, appear less likely to change at this stage.

ECB: relaxed about everything

Consistent with the ‘maximum optionality’ tone heard from ECB speakers over the past weeks, the most recent outings yielded no further insight into the future path of policy. The most notable development however was a relatively relaxed take on the potential effect of the Omicron variant, and of the current COVID-19 wave in general, on economic activity.

The comments could come across as hawkish, but it is worth remembering that, despite abundant coverage, it is too early for central bankers to express an opinion on its potential consequences for policy. VP De Guidos was the one exception, expressing concerns about the Omicron variant in an interview published overnight Monday, but highlighting his view that Europe is in a better position than last year.

Even after the recent pullback, inflation swaps are still consistent with the ECB hitting its target

EUR 2Y Inflation Swap
EUR 2Y Inflation Swap

Besides COVID-19, the overarching message is that the inflation spike is temporary and that it does not warrant any rate hike next year. Beyond that point, opinions diverge, but 2023 is sufficiently far away in time for officials not to express a definite view. Our own forecast is that inflation will continue flirting with the 2% level in subsequent years, making the case for the withdrawal of monetary support measures.

Disclaimer: This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more

Original Post

Rates Spark: Shaky Grounds

Related Articles

Rates Spark: Shaky Grounds

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with other users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind:  

  •            Enrich the conversation, don’t trash it.

  •           Stay focused and on track. Only post material that’s relevant to the topic being discussed. 

  •           Be respectful. Even negative opinions can be framed positively and diplomatically. Avoid profanity, slander or personal attacks directed at an author or another user. Racism, sexism and other forms of discrimination will not be tolerated.

  • Use standard writing style. Include punctuation and upper and lower cases. Comments that are written in all caps and contain excessive use of symbols will be removed.
  • NOTE: Spam and/or promotional messages and comments containing links will be removed. Phone numbers, email addresses, links to personal or business websites, Skype/Telegram/WhatsApp etc. addresses (including links to groups) will also be removed; self-promotional material or business-related solicitations or PR (ie, contact me for signals/advice etc.), and/or any other comment that contains personal contact specifcs or advertising will be removed as well. In addition, any of the above-mentioned violations may result in suspension of your account.
  • Doxxing. We do not allow any sharing of private or personal contact or other information about any individual or organization. This will result in immediate suspension of the commentor and his or her account.
  • Don’t monopolize the conversation. We appreciate passion and conviction, but we also strongly believe in giving everyone a chance to air their point of view. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at’s discretion.

Write your thoughts here
Are you sure you want to delete this chart?
Post also to:
Replace the attached chart with a new chart ?
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
Are you sure you want to delete this chart?
Replace the attached chart with a new chart ?
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.
Continue with Google
Sign up with Email