ECB sources indicate December rate hike then pause
ECB sources see a December rate hike followed by a pause; new estimates show bond yields cut growth by 100 bps and inflation by 90 bps.
The US Treasury sold $44 billion in 7-year notes at 4.894%, matching the WI yield, receiving a B- grade with strong direct demand.
The auction was assigned a grade of B−.
On the whole, the sale was slightly above average. The high yield matched the when-issued level, so no tail appeared—a change from the usual modest tail. The bid-to-cover was a touch below average. Among bidders, direct participation was stronger, making up for weaker indirect demand. Directs took 8.62 percentage points more than their norm, while indirects fell short by 5.93 percentage points. Dealers ended up with 9.41%, below the 12.1% average, which points to solid end-investor appetite. The lack of a tail and the smaller dealer share give the auction a mildly positive feel, though the lower bid-to-cover and softer indirect participation keep the grade in check.
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ECB sources see a December rate hike followed by a pause; new estimates show bond yields cut growth by 100 bps and inflation by 90 bps.
ECB kept its main rates unchanged, with Lagarde set to leave in February. Markets now see a 65% chance of a hike in December.
Markets react to how news changes expectations, not to good or bad news. Positioning and forward-looking pricing explain price moves.
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