LIVE MARKETS-Bond market moves gone too far says Natixis

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BOND MARKET MOVES GONE TOO FAR SAYS NATIXIS

Investors this week have rushed to sell government bonds as concerns mount that war in the Middle East will renew upward pressure on inflation and force central banks to start hiking interest rates soon.

German two-year yields are 26 basis points higher than last Friday. That weekly change is greater than the move after Germany announced reforms of its debt brake, something seen as a generational shift. DE2YT=RR GVD/EUR

The price of oil has also jumped sharply, Brent LCOc1 is now up to $88 a barrel but Jean-François Robin, head of global research at Natixis CIB, says this move is rather less dramatic than the move in rates that it has precipitated.

Robin thinks energy markets are pricing a shorter war, while central bank pricing and front-end rates are repeating the 2022 playbook after Russia's full scale invasion of Ukraine, and so pricing something more protracted.

And he thinks oil traders have it right.

"The idea is that this shock is very similar to 2022, and the ECB has to do this and that - I don't buy it. This idea that the ECB might hike rates this year, is nonsense to us," he said.

"There's one thing that you (central banks) do with this kind of situation, is you look through the oil prices and the commodity prices -- the central bank has to react to inflation for sure, but to second round inflation."

Of course, even he accepts it depends on what happens in the war medium term.

"If it's a long-lasting story and you have oil at $100, that changes the picture ... . But then, we're back to step one, is it going to last? And that's anybody's guess, but our guess this is that it's not going to last for very, very long."

(Alun John )

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