When the Bank paused earlier this year, it convinced the bond market rates were dropping soon. As the chart shows, bonds yields dropped significantly in the month after the March/April pause. The market was convinced the worst was over and lower rates were around the corner.
That’s changed since the summer. After the last three announcements – including a ”hold” in September – borrowing costs have increased. The bond market has received the message: this isn’t temporary. It doesn’t seem there’s a rate cut anytime soon, and the market is adjusting to that reality. The good news: perhaps no further hikes are needed, the message is clear. The bad news: higher costs and a drag on deals as financing becomes harder.