Celeritas Capital

Today's drop in interest rates seems to me like a slight correction of some market excesses. Overall, fiscal concerns in Europe, particularly in FR, flared up one last time, but it only sparked a weak willingness for minor spending adjustments. Nevertheless, considering FR's growth prospects this year, it seems a large amount of bond issuance will still be necessary. In the UK, it is about time for various news reports to emerge through the FT. Soon, we will start hearing noise regarding next year's budgets and debt issuances from various countries. In this phase, we must pay attention to the reaction of the "term premium," a term the market favors. Actually, I don't particularly like that term, partly because of its extreme ambiguity. Even if we accept that ambiguity, we must keep in mind that its range is excessively broad, and its characteristics can be both pro-cyclical and counter-cyclical. US officials are uncomfortable with the recent rise in interest rates, yet they continue to put up a strong front, subtly pushing the narrative that "the economy is solid." However, FED officials seem to be flinching a bit. Williams and Jefferson (though I believe their sincerity) expressed some concern about the market getting too far ahead of itself. Until last week, I believe they had to justify the FED's recent decision, the reasons for choosing to hike, and the SEP they submitted. On the communication timeline, they have now fulfilled that agenda, and this week's comments seemed to acknowledge some of the market's concerns. I still believe there is quite a bit of room for correction regarding the levels the market is currently pricing in. In my view, there is a remaining excess of about 35-40 bps. Pricing in one hike this year seems very reasonable, and depending on momentum, pricing in an additional hike also seems appropriate. However, I believe that pricing beyond that stems from trauma over the past hiking cycle, a multidimensionally changing geopolitical landscape, and widespread concerns about spillover effects on the real economy. I intend to keep an open mind and watch how this unfolds. Even if the Iran issue is resolved, I do not think its impact on overall rates will erase the entire recent upward trend in real interest rates. In terms of timing, if there is room for this to be resolved, I am skeptical about whether it will happen right after this year's midterm elections, which Trump is heavily pushing. Even so, oddly enough, with several timelines aligning, I think that excess will be largely resolved by the time we pass the first half of 2027 under the current trends and conditions, of course. My biggest interest is whether the appropriate pricing for the next rate cut will fall in the second half of 2027 or the first half of 2028. Of course, the first half is packed with various political events, and the second half holds another major event: the next US presidential election. We need to keep an open mind and watch how things unfold.