Volatility continues to be exacerbated on long-term interest rates, particularly on the American 10-year bond. After the strong acceleration initiated at the beginning of September, which saw rates rise from 4.1% to a high point of 4.9% at the beginning of October, the return of geopolitical risk allowed a certain relaxation, bringing the American 10-year bond back towards 4.5% in a movement from “flight to quality”. However, last Thursday's session was once again marked by a strong increase which acted in two stages. The first phase took place following the publication of American inflation for the month of September. This came out above expectations at the global level with a variation of +0.4% over the month (compared to 0.3% expected), which brings the increase over one year to 3.7%, i.e. stagnation compared to last month. . On the core part, however, the figures came out in line with expectations, with a drop in annual inflation to 4.1% (compared to 4.3% in August). These figures do not call into question the movement of disinflation currently at work but they confirm that the return to the 2% target will take time and that the path will not necessarily be linear, especially since the rise in prices is increasingly concentrated on a few expenditure items. This is particularly the case for rents where the annual increase is still above 7% even if this marks a significant difference with the trend observed in new leases in the private sector where the drop in rents is clearly notable. The other factor in the increase in consumer prices is the new rebound in energy prices of 1.5% over the month. But it is ultimately the maintenance at a high level of price dynamics in services excluding rents which has worried the financial markets the most, even if this movement is explained by a specific increase in prices in financial services. These figures are, in our opinion, not likely to change the reading of the Fed, which needs time to best observe the effects of its monetary policy on the economy. Especially since, as the President of the Boston Fed recalled, the recent rise in long-term rates implies a tightening of financial conditions, which de facto reduces the need for the Fed to raise its key rates again. As we have been indicating for several months, the Fed should therefore once again take a pause at its meeting on November 1, which was not particularly consensual in the market a few weeks ago (95% probability currently for a Fed pause against less than 40% at the end of August). The second upward phase on rates, more technical this time, is due to the Treasury's issuance of $20 billion in 30-year bonds, the results of which show a lesser appetite among end investors.
Finally, reading the latest minutes from the ECB seems to confirm that the European institution is done with rate increases after the last one in mid-September. Indeed, ECB models indicate that rates between 3.75% and 4% are sufficient to bring inflation back towards 2% and the members of the committee now consider inflationary risks to be more balanced.
Thus, on both sides of the Atlantic, the end of the monetary tightening cycle should make it possible to limit upward pressure on rates. On the other hand, it will take more change in both inflation and growth to imagine a marked drop in interest rates.