Each week, we publish a Fixed Income Weekly, a recap of interest rate and credit markets in the US and around the world. In addition to charts and tables keeping track of performance and levels for fixed income assets in the US and around the world, we also present a weekly trade idea and unique analyses.
This week, we introduced a global central bank index using overnight index swap forwards which indicate market pricing for short-term central bank rates and current central bank rates. We can then convert those variables into 25 basis point increments, each representing 1 hike, and weight them by purchasing power parity (PPP) GDP levels. We include data for the US, Canada, Mexico, Brazil, the Eurozone, the UK, Switzerland, Norway, Sweden, Czech Republic, Poland, Australia, New Zealand, Japan, India, and South Korea, capturing a wide swath of developed and emerging markets.
As shown in the chart below, despite a small pullback over the last few weeks thanks to Italian stresses, interest rate markets are still pricing an output-weighted average of 1.6 hikes across the global economy between now and mid-2019. That’s near the most in over 5 years, and represents a significant shift from the neutral to cutting bias of the 2016-2017 period.