Rates Spark: Equity Optimism Not Shared By Rates

2025-04-15 04:30:00 ET

Summary

• Significantly lower yields in the belly of EUR and USD swap curves suggest rates markets remain pessimistic about the economic outlook further in the future. This contrasts with the rally in equities during the day.
• The front-end of the euro swap curve showed less volatility and remains anchored to the idea that the ECB will cut to around 1.75% by the end of this year.
• USTs outperformed the swap curve, which would reflect a risk-off day in normal circumstances. But since the turmoil last week, the UST has not behaved as a typical safe asset.

By Michiel Tukker

Rates markets don’t share equities’ optimism

Whilst equity markets posted decent gains, rates markets reflected less optimism. The belly of the curve, in particular, outperformed in rates markets. For both EUR and USD curves, the 5Y swap rate was down almost 10bp, which voices a somewhat different tone from the bump higher in equities. The fall in 5Y rates suggests that economic concerns are peaking further out the curve, whereby Trump’s policies are expected to especially weigh on growth later into his presidency. Perhaps equity markets are taking a more short-sighted view....

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