Rates Spark: Bear steepening impulses as sentiment holds up

Market risk sentiment is looking more optimistic at the latest developments around the Strait of Hormuz. While oil prices remain elevated, they are holding at least below the US$100/bbl mark this week. US equities have continued to rise and hit new all-time highs while credit spreads tightened.

Central bank pricing is also looking less hawkish compared to the start of the week. The ECB, for instance, provided more hints that a hike in April is unlikely, though not off the table – some 6bp is what the market is now pricing for the meeting. However, over the past session, we have seen long-end rates rise more, resulting in a bit of bear steepening this time around. Perhaps one should not read too much into it. After all, 10y UST yields had just touched the 4.24% mark again, a level last seen almost a month ago, which itself might argue for a little rebound. And a rise in yields also gels with risk assets performing better.

Relatively speaking, Bund yields do look more elevated at 3%, but given a busier primary market and little other domestic impetus following the general direction, higher looked like the path of least resistance. But the clearest sign that sentiment has also been improving in bond markets was primary markets.

On the EUR side, there has also been a flurry of syndicated deals this week, kicked off by a (scheduled) dual tranche syndication from the EU on Tuesday, and France followed suit with a new green bond of its own. Yesterday, Italy sold a new 10y benchmark alongside a new 20y linker, and in the broader SSA space, Germany's NRW Bank and Land Berlin were in the market, while Canada’s Quebec then mandated a 15y €-bond.