Fed's Rate Hike Fails to Move Long Rates; Markets Eye Sterling Repricing

The US Federal Reserve's recent decision to raise interest rates by 25 basis points did not have a significant impact on long-term bond yields. According to ING, despite the calmness post-decision, the market is likely to see the 10-year yield break back above 5% in the coming days and weeks. The current dynamics of high inflation, a wide fiscal deficit, and increased issuance of bonds are hampering long rates.

The 10-year real yield has risen slightly as an offset, while the 30-year yield is still higher than before Treasury Secretary Bessent's buyback announcement but below subsequent highs. The 2-year yield spiked up 10 basis points to nearly 4.7% post-decision, causing the curve to flatten.

ING expects the 5-year bond yield to remain flat if there are more hikes in the future. The market is currently hawkish on the Bank of England's monetary policy, expecting a significant increase in interest rates over the next year, but ING does not share this view, predicting a dovish repricing in sterling rates.