Ahead of tonight’s FOMC, we would like to highlight the importance of interest rates expectations when considering possible yield curve moves. To do that, it's key to see how rate hikes expectations developed in the last trimester relative to the cash bond yields.
At the beginning of October, the market was pricing barely one interest rate hike by the end of 2022. In a little over two months, interest rate hikes expectations almost tripled, with the market pricing nearly three rate hikes by the end of next year.
However, the most surprising factor is that while the short part of the yield curve rose with hikes expectations, 10-year yields mainly remained flat. Thirty-year yields, instead, dropped from 2% at the beginning of October to 1.73% at the beginning of December, then recovered slightly.