Interest Rates

Fixed income investors have reasons to be fearful

23 Jan 2024

Uncertainty over the direction of inflation and monetary policy is buffeting markets. In this Exchange podcast Jim Grant, founder of ‘Grant’s Interest Rate Observer’, discusses his gloomy outlook for US bonds and sounds a warning about the risks of shadow banking.

BoE can win inflation race but lag on rate cuts

17 Jan 2024

UK price growth could drop in the spring due to lower energy bills, enabling the Bank of England to hit its 2% target before the US and Europe. But wage and services inflation will stop Governor Andrew Bailey from reducing borrowing costs. So will a likely UK fiscal splurge.

Goldman’s new durability message cuts two ways

16 Jan 2024

After failing in consumer finance, the investment bank wants to emphasize the predictability of its existing businesses. Boss David Solomon makes a good case that a chunk of revenue is more reliable than it once was. And yet arch-rival Morgan Stanley generates even more of it.

Mega-banks menaced by closing jaws in murky waters

12 Jan 2024

JPMorgan, BofA, Citi and Wells Fargo all unveiled financial results clouded by exceptional items and less predictable outlooks. Bad-debt costs are up and interest rates are probably coming down. Cutting expenses relative to revenue, or “positive jaws,” will be a 2024 fixation.

Bond deluge will nudge ECB to softer rate stance

4 Jan 2024

European countries’ fiscal needs and the end of central bank buying mean a record 675 bln euros of sovereign debt will be on sale in 2024. That may keep borrowing costs high for states like Italy. ECB President Christine Lagarde can help by meeting investor hopes for swift cuts.

Russia’s economy will suffer from brawl at the top

18 Dec 2023

The CEO of state-held oil major Rosneft slammed the central bank’s high interest rates. President Vladimir Putin has long thrived on tensions between hardliners and the few remaining technocrats. But with Moscow in permanent crisis mode, the high-level conflict spells trouble.

Policymakers take divergent paths toward rate exit

14 Dec 2023

Central banks in Europe and the US left borrowing costs untouched this week. But the latter went a step further and unexpectedly promised cuts. In this Viewsroom podcast, Breakingviews columnists explain how ratesetters, who were slow to tackle inflation, could be laggards again.

Powell was pragmatic; Lagarde will have to be

14 Dec 2023

The European Central Bank, like the US Federal Reserve, left its rates unchanged. But unlike Fed Chair Jay Powell, ECB boss Christine Lagarde didn’t imply that lower inflation meant looser monetary policy. A slowing economy and abating price pressures will push her there in 2024.

Last word of 2023 goes to Jay Powell

12 Dec 2023

Investors are pricing in 1 percentage point of US rate cuts next year. The Federal Reserve doesn’t want that, so its chair needs to talk up inflation on Wednesday. If markets keep ignoring him, rallies in stocks and bonds will continue, but the central bank’s job will get harder.

BoE is a more credible rate-cut sceptic than ECB

12 Dec 2023

Policymakers in London and Frankfurt are unlikely to touch borrowing costs this week. Their challenge is to persuade markets they are not about to start slashing them. Bank of England Governor Andrew Bailey has the easier task, but only because the UK is in worse economic shape.

Japan’s rates tweak is careful and crafty

2 Nov 2023

The central bank changed its policy to allow higher 10-year bond yields. Unlike the US, it can afford to raise borrowing costs slowly as inflation is low. In this Viewsroom podcast, Breakingviews columnists explain why monetary tightening as others loosen may give Tokyo an edge.

BoE’s tough talk on rates ignores weak homeowners

1 Nov 2023

The Bank of England is set to keep borrowing costs steady this week but insist they will stay high to curb inflation. That may be hard, given the sick housing market has yet to feel the pain of past hikes. The UK may ease policy sooner than its peers will, and the market expects.

BOJ chooses slow path out of zero-rate limbo

31 Oct 2023

Japan’s central bank again tweaked its policy to permit slightly higher yields on 10-year government bonds as it inches back to positive interest rates. The snail’s pace is understandable. Yet with bond yields rising across the developed world, it remains a loose-money outlier.

ECB’s rosy outlook is a recipe for economic pain

26 Oct 2023

Frankfurt policymakers think the euro zone will grow by 0.7% in 2023 and want to keep rates high to fight inflation. Yet most data point to stagnation or recession. A gloomier perspective would enable the European Central Bank to ease policy and help the bloc’s economy.

How the Federal Reserve got inflation wrong

10 Oct 2023

US policymakers underplayed the spike in consumer prices in 2021. In this Exchange podcast, Don Kohn, senior fellow at the Brookings Institution and former Fed vice chair, argues that a rule change a year earlier was a key reason why the central bank failed to lift rates faster.

Central banks start game of chicken over rate cuts

21 Sep 2023

Officials in Sweden and Norway hiked borrowing costs, while their British peers didn’t. All hinted policy will stay tight, fearing that stoking expectations of an early start of the loosening cycle may fuel inflation. An economic slowdown may prompt rate-setters to be less tough.

Oil spike offers only a brief boon for Fed and MbS

21 Sep 2023

Crude prices are up 25% since July, swelling the Saudi crown prince’s budget. Fed boss Jay Powell wins too: he can use it to justify inflation-busting high rates. Yet long-term, a surfeit of energy demand over supply will complicate life for both central bankers and oil tsars.

Fed clarity effectively sends a strong buy signal

20 Sep 2023

Benchmark US interest rates probably will hover around 5.5% for a while. A stable cost of capital gives companies, consumers and investors good reason to stop putting off decisions any longer. It should help resolve valuation ambiguities and restart M&A, IPO and housing activity.

New economic rules shatter US bonds’ crystal ball

19 Sep 2023

Government debt has been signaling a downturn for 440 days, but there’s been no recession. The famed predictive power of the yield gap between different vintages of Treasuries is waning. As the global economy evolves, warnings from the fixed-income markets can be safely ignored.

Sunak and Bailey agree on higher UK rates, for now

19 Sep 2023

The PM and the Bank of England chief both favour raising borrowing costs in the short run to curb price growth. But their paths may soon diverge. Downing Street would love easier monetary policy before an election in late 2024. The BoE cannot relent until inflation hits 2%.