Sometimes in markets, everyone looks up the same price in the morning to get a feeling of where sentiment is. It’s often one of the big ones; the S&P 500, the long bond, the price of oil, DXY, or gold, or even Bitcoin. Recently, everyone has been following the bloodbath in short-term interest rate markets as implied rates in one developed market after the other have gone haywire. Things have settled down slightly in the past week following the FOMC meeting, and the hilarious unch-BOE decision in the face of a near-certainty of a rate hike only a few weeks ago. I reckon implied rates will fall a bit further in the near term. The U.S. 2y, for instance, seems like it wants to go down before it’ll try to snap back, implying that the violent decline in short-term interest rate futures—though not necessarily those for 2022—should ease a bit too. But it is difficult to escape the feeling that the genie is out the bottle. Expectations have shifted, and while central banks won’t have to meet them as priced, they will have to deliver something.
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