“Central banks believe that policy is currently tight and are looking to gradually cut rates. If there are signs of weakening employment, they will act quickly to lower rates. Conversely, if employment numbers improve, they may opt for smaller rate cuts. Just two months ago, the bond market was indicating a high likelihood of central banks falling behind the curve. However, now that the recession risk has diminished, bond yields have increased. This shift is not necessarily bearish for risk assets and does not indicate any missteps by the Fed,” stated Dario Perkins, managing director of global macro at TS Lombard, in a note to clients dated October 17.
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