Global Rates Mispriced

Apollo Chief Economist

There is substantial disagreement in markets about the outlook for global rates in 2023, see chart below.

Looking at forward OIS curves shows that markets are pricing rate increases in 2023 by the ECB, the Riksbank, and the SNB.

In sharp contrast, markets are pricing that the Fed, BoC, and BoE will cut rates significantly in 2023.

Implicit in these forecasts are very different assumptions about inflation. In some countries, the expectation seems to be that inflation will soon reverse back toward the central bank’s target. In other countries, the assumption is that inflation will be a much more permanent problem that requires higher rates for much longer.

Normally central banks move in sync, and the bottom line is that several of these central banks seem mispriced. In particular, it seems highly unlikely that in 2023 the ECB will be hiking rates several times, and the Fed will be cutting rates several times.

Chart showing contradictions among global central banks for rates in 2023
Source: Bloomberg, Apollo Chief Economist. Note: Hikes and cuts are derived from the pricing of the forward OIS curve for individual countries using FWCV on Bloomberg.

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