Saturday, March 2

The Euribor is infected by the fear of rate hikes

The rumors of a surprise rate hike by the Federal Reserve in January have not only had consequences in the bond market, with falling prices and rising yields, but has also been noted in the Euribor.

The index to which most mortgages are referenced has risen just over 6 percent so far in January to -0.468 percent, its highest level since the year began.

Still, the price average Euribor for this month stands at -0.489 percent, a level close to the 0-502 percent with which December closed.

The Fed, behind the curve

The Federal Reserve will meet on January 26, focusing the attention of investors, especially after the central bank assured through the minutes that it would raise rates sooner rather than later.

In this regard, Xavier Molina, eToro expert, points out that “at this point in the markets, it is not difficult to summarize the current situation and the prevailing fears at the start of the year”.

The Fed has stayed “behind the curve”, that is, it has not raised interest rates (at all) as a way of combating inflation and the latter has gotten out of hand. Precisely, the ten-year paper has touched the level of 1.9 percent, the highest so far this year.

This means that now, being fully aware of the “non-transitory” problem, the expert explains, that he will have to carry out a much more aggressive upward adjustment and that, the markets do not like.

limited contagion

These perspectives, which, as we said, have caused the rise in US debt, have ended up infecting the sovereign debt of the eurozone. The german bund has returned to positive rates, for the first time since May 2019, while the Spanish debt is around 0.70 percent over ten years.

The forecast is that it could reach 1.3 percent in 2023, coinciding with the withdrawal of stimuli from the ECB and the proximity of the rate hike.

The Euribor has not been unrelated, as we said, but its effect has been more limited. Thus, the indicator still depends on the monetary policy of the European Central Bank (ECB) to record strong increases.

And its president, Christine Lagarde, has indicated that the agency will maintain rates without raising throughout 2022, despite the fact that there are more and more voices that anticipate a rate hike at the end of the year. Until this happens, a clear upward trend of the indicator will not be seen.

In fact, the monetary markets of the area anticipate a rate hike of 20 basis points for December, compared to 17 basis points at the beginning of the year.

The Euribor will remain negative throughout 2022

Despite the rate hike by the Fed and the pressure on the ECB, with the PEPP marking its end point in March this year, analysts continue to see the Euribor in negative and closer to -0.5 percent current than zero percent.

Thus, the estimates developed by Bankinter indicate that it will end the year at -0.30 percent, compared to -0.50 percent at the end of the year, just 20 basis points less than at the end of the year.

For the next year, 2023, the price of the Euribor will be at -0.20 percent. If these projections are maintained, the Euribor will have traded negative for seven years, since it entered the red in February 2016, a month before the ECB placed the price of money at zero percent.