Central Banks: BoE, ECB, BoJ – One cut, one hold, one hike
Last Thursday, three major central banks delivered policy decisions. The Bank of England cut rates by 25 basis points as widely expected, although the vote split (5-4) was closer than anticipated. This prompted a modest sell-off of front-end rates, with market repricing a higher terminal rate around 3.30%. The ECB left rates unchanged, shifting the focus to updated projections. Growth was revised marginally higher, but inflation is still not expected to return to target until 2028. President Lagarde kept optionality fully open, avoiding any clear directional guidance for the next move. The Bank of Japan hiked rates by 25 basis points, in line with expectations, but the neutral tone of both the statement and the press conference disappointed markets. The yen weakened by 1%, while rates moved higher: 10y JGBs rose above 2%, a level not seen in decades, and the 1y1y swap climbed above 1.30%. Markets are increasingly pricing a broader reassessment of Japanese monetary policy, although domestic political constraints are likely to slow the pace of normalisation.
Holiday Risks: Ukraine and Venezuela
US foreign policy remains heavily focused on geopolitics during the holiday period. In Ukraine, the Trump administration is pushing aggressively for an end to the war. President Zelensky faces a delicate political backdrop following a corruption scandal. Last Friday, EU leaders agreed to provide a new 90 billion loan over two years to Ukraine without touching frozen Russian assets, easing financial pressures on Kyiv, but President Putin’s increasingly aggressive stance is complicating prospects for a near-term resolution. At the same time, US influence in Latin America has intensified and is peaking in Venezuela. Pressure on the Maduro regime has increased materially, with the US blocking oil tankers off the coast, effectively cutting off oil revenues. Expectations of a potential regime change continue to build.
Algebris Investments’ Global Credit Team
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