The reconfirmation of Powell at the helm of the Fed is also reflected in European government bonds. The sell-off on bonds, with a consequent increase in yields, is also affecting BTPs. The 10-year BTP rate regained momentum above the 1% barrier (maximum at 1.06%) with a widening BTP / Bund spread in the area of 128 basis points.
Investors expect Powell to be more aggressive in dealing with inflation over the course of his second term, as hinted at by yesterday’s first statements. The money market thus returned to pricing the first rate hike of 25bps as early as the June meeting. Furthermore, a faster reduction in bond purchases cannot be ruled out.