Rates spark term premium can rise independent of central banks

Key arguments

• A 25bp hike is practically fully discounted; the Fed must hike or explain itself, and delivery just validates a discount Warsh largely manufactured.
• 50bp is not ING's call but could be a chunky 'insurance hike' guided as one-and-done, potentially better controlling the back end.
• A 50bp move could comfort or spook the long end, validating the 100bp 10yr rise and risking a follow-through sell-off.
• Term premium can keep rising in favourable conditions, driven by 30Y JGB yields, euro swap liquidity and US deficit concerns; ING is more pessimistic on the US for 2027.

Corresponding source evidence

1. Now that would be quite the statement Close your ears Mr President, but 50bp might be the right move, as it could be more fitting with how Chair Warsh might like to pursue policy.
2. This is why this meeting is so intriguing A 50bp rate hike by the Federal Reserve could be the right move (Mr President), although we think it will be 25bp instead - the market discount We think a 25bp hike.
3. Chair Warsh would be delivering on the market discount, one that he, to a significant extent, manufactured through guidance (from his Jackson Hole speech).