German 2-year yields set for weekly rise, bets on ECB rate hit 3.5%

Central banks are likely to reinforce their tightening bias after the Fed adopted a more restrictive stance on Wednesday. However, investors continue to bet on a more aggressive rate path than that outlined by US policymakers in the dot plot.

Some economists said market bets on further rate hikes had gone too far, arguing that higher energy prices were likely to weigh on economic growth while also helping to curb inflation and temper expectations for further monetary tightening.

"The recent rise in bond yields largely reflects investors’ reassessment of the neutral rate given strong nominal growth," Raphael Olszyna-Marzys, international economist at J. Safra Sarasin Sustainable Asset Management, said about U.S. rates.

"The risks are plainly tilted towards further tightening in 2027," he added, after arguing that "most versions of the Taylor rule suggest that the policy rate should be around 100 basis points higher than it is today."