Even the Bank of Japan has joined in with an unexpected announcement ending their negative rate policy and shifting yield curve controls. They have been buying JGB’s for decades to try and combat deflation and now own over half the market.

Despite delivering a smaller 50 bp hike the Federal Reserve brought the recent rally in risk assets to a halt when they firmly pushed back against dovish expectations and reiterated that rate rises would continue. They also indicated that the terminal rate would be higher than markets were pricing in and Jerome Powell explicitly reaffirmed that the Fed would not be deflected from their fight against inflation despite recessionary fears. It remains to be seen whether the US does actually suffer a contraction.

The ECB also delivered a smaller 50bp hike but turned up their rhetoric too. They reiterated that they are more focused on reducing inflation than growth and stressed that future monetary policy would be tightened ‘significantly’. In the post meeting press conference, a visibly exasperated ECB President Christine Lagarde made a special effort to emphasize that further 50bp hikes were coming. The ECB also announced that QT was starting in March by initially not reinvesting maturing bonds to a tune of 15Bn EUR a month, in a (small) effort to tackle its EUR 5.2 Tn balance sheet.

The Bank of England appeared to acknowledge that the terminal rate is likely to be around 4.5% as it too delivered a 50bp hike putting rates at their highest since 2008. However, the MPC was split three ways on the size of the hike. We look to be in line for future hikes to be 25 bp and therefore to continue for longer. Despite our labour markets continuing to be tight there must be potential for their plans to change if the most pessimistic fears for growth materialise.

Sterling credit spreads continue to rally and as primary markets wind down before the end of the year the pace of issuance slowed. We did however see some notable coupons printing and 3 year Sterling senior debt paying 7.625% is certainly compelling.

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