Interest rates: The US 10-year hits 4.68%

One of the pillars of the current narrative is that inflation will rapidly return to around 2%, with the corollary that central banks will adopt a more accommodating stance. While recent economic statistics do indeed show a decline, the observed pace of disinflation does not seem compatible with a rate cut as early as 2024.

After hearing central bankers explain that rates will remain high for a long time to come, in order to curb inflation, it seems that investors are slowly starting to incorporate this into their forecasts. Expectations for the trajectory of rates now point to a first cut between May and June 2024 , compared with February/March this summer. Despite this, markets prefer to adopt a more optimistic stance than the Fed, which still believes it will have to keep rates high throughout 2024.

Source: Bloomberg

6 months of waiting... if all goes smoothly

However, last Friday's announcement of a deflated Core PCE in line with expectations, i.e. +3.9% y-o-y vs. +4.3% in July, lifted investors' spirits after a disastrous September in terms of stock market performance. If disinflation can keep up this pace, it will take another 6 months to return to the sacrosanct 2% level, which takes us roughly to March 2024.

In the wake of the release of this data, the US 10-year yield began to ease, after hitting a local peak of 4.68%. At this stage, it is naturally too early to anticipate a trend reversal. As a first step, therefore, we'll be keeping an eye on the 4.33% level, the former peak of October 2022, to confirm a lasting fall in interest rates.