Is the decoupling of long-term rates between the Euro and the USD already over?
This is the key question dominating the Eurozone at the start of the year, as we have observed over the past month:
A continued rise in U.S. long-term rates, with the 10-year SOFR swap now exceeding 4.10%, compared to 3.16% in mid-September.
A sharp and rapid increase in Eurozone long-term rates, with the 10-year Euro swap suddenly returning to its early September levels.
The 10-year swap rate against the 6-month Euribor has risen by 35 basis points since early December (from 2.09% to 2.44%). This increase had only a 5% probability of occurring according to the interest rate options market prevailing in early December on the swaps market.
Stronger-than-expected inflation in December in several European countries, including Germany, is also contributing to the unfavorable trend in long-term rate markets.
This is a good opportunity for us to remind you that, in the world of long-term rates, movements can be swift and unexpected, and no certainties exist.
Despite an anticipated 1% decrease in the ECB’s key rates by summer 2025, long-term rate volatility may persist in a context where economic and geopolitical uncertainties remain high at the start of the year.
Wishing you all a very happy New Year!
