From Pythagoras onwards passing through the Hindu Trimurti (Brahma, Shiva and Vishnu) and the Christian Trinity up to the sublime heights touched by the three canticles in tercets of the Divine Comedy, this number has always had a particular charm and has great symbolic value .
The American 3-year XNUMX% was a sort of threshold whose achievement undeniably had both a material and psychological impact with which to explain at least part of the great nervousness that continues to characterize the markets.
But returning for a moment to digress and play with the number three, we read somewhere on the Internet that for the Egyptians the hieroglyph of three was none other than "two plus one".
This reminds us that sometimes the "composition" of a number can be relevant: even 3% of the Treasury is in fact the sum of a "2+1" like the Egyptian three, or 2% of the level of breakeven, therefore of inflation and 1% real rate (to be really precise the correct numbers would be around 2,20 and 0,80 but the analogy seems to me to justify a small numerical license).
And in our 3% the composition of the mix is incredibly important: rising rates always represent a tightening of the liquidity conditions of the markets.
Up to now, however, the mix has been benevolent with the inflation component which has incorporated the first signs of an awakening in prices (Friendly for the market, at least in an initial phase and above all for some sectors), while the recovery of the real component (much more indigestible) was softer.
In any case, rising rates weighed on the traditional bond world and on Emerging Markets in particular, where a renewed strength of the Dollar helps to exacerbate tensions in a segment that continues to suffer from idiosyncratic elements (Argentina and Turkey above all).
Overall, however, the market and the credit component in particular held up quite well to this first leap in size on the American rate side, even net of a clear increase in volatility in all sectors. The real change is to register in sentiment which has experienced an evident negative shift, where the "buy on dips" has ceased to be the dominant leitmotif.
The “soft” real/nominal rate mix, a growth which, although marginally less brilliant, still remains tonic in almost all geographies and the still solid company fundamentals manage to maintain the credit market.
Overall, we remain of the opinion that this lateral and "nervous" phase suggests a strategically cautious attitude ready to exploit tactical windows of opportunity: never before does it seem fundamental to us to face the market with completely unconstrained, free from dogmas and preconceived schemes.
We are clearly in an almost epochal transition phase and looking at history can provide only partial help because the exceptional nature of the path of this cycle risks causing the dynamics experienced in the recent past to explode in similar phases of the cycle.
Maybe it's just a sensation, but in a transition like this, even the central banks seem to navigate on sight, carving out where possible ample room for maneuver as the Fed has just done by introducing the theme of symmetry on the inflation target.
After years of synchronicity, an increasingly evident time lag on the dynamics of the Fed and the ECB is also undeniable, which is unloaded on a ten-year rate differential between the USA and Germany which has soared to 240 basis points; a side effect but not negligible is the explosion in the cost of hedging positions in dollars for investors based in euros.
