Misallocated Inflation Risk Premium

Making sense of knee-jerk STIR moves.

STIR markets have rapidly repriced expectations for G10 central bank moves over the past few trading sessions, amid cost-push inflation concerns in energy markets, driven by the conflict in the Middle East.

The broad correlated move is an understandable knee-jerk reaction by participants, but it feels ill-thought-out from a country-level vantage point. The extent of energy exposure, the timings of pass-through impact, and the existing central bank stance should also be taken into account.

As a result, we believe there’s already an asymmetry in the G10 rates space that could offer some attractive opportunities in the coming weeks.