Klass arrive just after Christmas but it wasn't with good news.
Yesterday some comment from Dutch central bank leader Klaas Knot were in the press and underscored the ECB's hawkish stance and are reverberating today with European bond markets back open.
"We are just at the beginning of the second half" of the rate hiking cycle he said. Knot noted five policy meetings between now and July 2023 and said they would achieve "quite a decent pace of tightening" via 50 bps hikes before rates peaked in the summer.
German 10-year yields are up 13.6 bps today and Italian 10s up 11.1 bps. In turn, that's spilled over into Treasuries, which are up 7.5 bps on the 10-year tenor with the US terminal rate bumping up to 4.948%.
Markets have certainly leaned back against the hawkish central bank talk but it will be a tough battle once they return from holidays and hammer the message home almost daily. Right now the market is pricing in a 25% chance the ECB hikes by only 25 bps on Feb 2 and given everything we've heard, that's mispriced.
