Global Bid for Havens Fades as ECB, BOE Policy Decisions Loom

(Bloomberg) -- A bid for haven assets spurred by disappointing results from technology giants on Wall Street faded on Thursday as investors braced for the Bank of England and the European Central Bank to set monetary policy.

U.S. Treasuries were little changed, reversing earlier gains that pushed the 10-year yield down by as much as 2 basis points in the Asia session, where a rally in Australian and New Zealand peers set the tone. German bonds also edged higher, poised to snap their longest run of declines in a year. Gilts underperformed.

The mixed picture comes after Meta Platforms Inc. and Spotify Technology SA foretasted slowing growth, adding to concerns that tighter financial conditions will hurt the global economy. The Federal Reserve last month signaled a faster-than-expected pace of rate increases, bruising debt holders and whipsawing global equity markets.

Attention now turns to Europe, where the BOE is expected to raise interest rates for a second straight meeting, delivering a 25-basis-point hike. While the ECB looks poised to hold policy unchanged, pressure is mounting on President Christine Lagarde to strike a more hawkish tone after inflation accelerated to a record in January.  

“The inflation shock and Fed hawkishness are raising expectations for the ECB/BOE to up their hawkish game at today's doubleheader,” wrote Jamie Searle, a rates strategist at Citigroup Inc. “Both may take hawkish steps, but it is difficult to out-hawk market pricing.”

The market is wagering on just over 25 basis points of hikes from the ECB by year-end, and on Wednesday briefly pulled forward bets on the first 10 basis-point increase to July from September. Lagarde has said higher borrowing costs are “very unlikely” this year.

U.S. 10-year yields were unchanged at 1.77%, having eased from a high of 1.90% set on Jan. 19. German peers were also steady at 0.04% and U.K. 10-year rates climbed one basis point to 1.27%. Benchmark 10-year yields in Australia and New Zealand fell at least four basis points. 

Talk of policy normalization has even reached Japan, where two-year overnight-indexed swaps breached zero for the first time since the central bank adopted negative-rate policy in 2016.

“Strong inflation is conducive to speculation that central banks may have to lift rates a lot more than expected and that will weigh on the global economy,” said Hideki Shibata, senior rates and currencies strategist at Tokai Tokyo Research Institute Co.

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