LONDON (Reuters) - Expectations of interest rate cuts in some of the world’s biggest economies have melted within the space of a month on hopes a successful coronavirus vaccine will fuel a growth bounceback next year.
As recently as Oct 20, markets were pricing rate cuts of up to 25 basis points from leading central banks by next autumn as the resurgent pandemic threatened a double-dip recession.
But encouraging updates on vaccines from Pfizer and Moderna have tempered that gloom, a mood reflected in a rise in long-dated government bond yields and a lower chance of rate cuts, according to Berenberg economist Florian Hense.
Between Nov 5 to Nov 9, a period when it became clear Democrat Joe Biden had won the U.S. election and Pfizer announced its vaccine news, eurodollar futures, which track short-term U.S. rate expectations, flipped to reflect expectations of 10 bps in rate hikes by Sept 2022.
Just the previous week, markets were predicting no changes. Futures now expect U.S. rates at 0.50% by September 2023, from 0.25% forecast a month previously.
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