Price pressure in the pipeline

US political strategist James Carville said he wanted to be reborn as a bond market because “you can scare everyone.” So when bond yields start signaling trouble, the whole market listens.

Escalating rhetoric about the war in the Middle East has led to what Deutsche Bank calls “the most hawkish central bank pricing ever for both countries.” [European Central Bank] and the Fed.”

Last week, government bonds were sold across the board, with Europe at the epicenter. 10 year bonds It was seen that France reached its highest level since October 2023. 10 years old OATS yields have risen to highs not seen since the European debt crisis in 2011. british gilts The 10-year bond yield followed suit, reaching the highest level in at least six months, leading markets to price in the 82% chance of a Bank of England rate hike this year. That’s right – a walk!

Across the Atlantic, predictions that the Fed might cut interest rates have fallen dramatically; Only a 20 basis point reduction was priced in by the end of the year. This means, for the first time, that the Fed’s rate cut in 2026 is no longer fully priced in, according to Deutsche Bank.

Altaf Kassam of State Street Investment Management told CNBC that “central banks may be able to weather temporary energy shocks, but persistent inflation risks will delay easing,” adding that there could be a renewed tightening trend in the event of an extreme shock.

President Donald Trump took to Truth Social and renewed his attacks on the Federal Reserve, asking: “Where is Federal Reserve Chairman Jerome “Too Late” Powell today? He should lower Interest Rates NOW.”

But in recent days As the possibility of a rate cut this year decreased, investors lost their hopes for the Fed to expand. EY-Parthenon Chief Economist Gregory Daco said in a recent note that given current market conditions, there’s now a good chance Powell “will be able to continue leading the FOMC even after May.” The Fed will begin its two-day meeting on Tuesday.