Energy price surge hits interest rates: gas at highest in over three years, annual BOT at 2.967%
The development of the last few hours compared with the morning is not crude oil but what crude oil is moving: European gas at 80.99 euros per MWh, the American ten-year at 4.843%, the Italian auction twenty basis points above the previous month. And the American inflation data due today.
This morning this newspaper reported on crude oil above one hundred dollars and forecasts on stockpiles. This afternoon’s development goes a step further: the energy price surge is passing through to the cost of money, and bond markets are pricing it in before the central banks.
The starting point is gas. Amsterdam’s TTF, the European benchmark, touched 80.99 euros per megawatt-hour, the highest value in over three years. On the oil front the continuing clashes between the United States and Iran are keeping Brent around 106 dollars a barrel and WTI around 101.
| Indicator | Value |
|---|---|
| Amsterdam TTF | 80.99 euros/MWh |
| Brent | ~106 dollars/barrel |
| WTI | ~101 dollars/barrel |
| US 10-year Treasury | 4.843% |
| US 30-year Treasury | 5.296% |
| Annual BOT (auction) | 2.967% |
| BTP 10-year | above 4.2% |
The data come from market readings reported by QN and from the analysis of Il Basso Adige, while Tokyo’s closing figures and the macroeconomic calendar are taken from Il Sole 24 Ore and from Borse.it.
The passage from energy to debt. A government bond yields more when the buyer expects rising prices: expected inflation erodes the coupon, and the buyer demands to be compensated in advance. This is the mechanism seen in this week’s Italian auction, where annual BOTs were placed at 2.967%, twenty basis points above the previous month, and in the Italian ten-year, back above 4.2%. On the American side the ten-year bond yields 4.843% and the thirty-year 5.296%.
Inflation in the euro area stands at 3.3%. At the meeting on September 10 the European Central Bank was expected to raise rates by 25 basis points, from 2.25% to 2.50%: the decision was the subject of the piece published this morning. On the American front markets assign a probability of between 60% and 67% to a Federal Reserve rate hike at the mid-September meeting — that is, they consider the hike more likely than not, without treating it as certain.
Stock markets and today’s data. Tokyo closed down 1.93%, at 64,011.34 points, with concerns over energy security in the Strait of Hormuz cited as the cause. The euro/dollar exchange rate remained little moved around 1.16: the weakness is therefore not of a single currency, but a general repricing of risk.
The event markets are awaiting today is the reading of the consumer price index in the United States, estimated stable at 3.4% year-on-year, with the core component slowing to 2.4% from 2.5% in July. Also on the calendar is the University of Michigan consumer sentiment index. The composition matters more than the headline: an overall index holding steady alongside a declining core component would indicate that the pressure is coming from energy and has not yet transferred to the rest of the basket.
What we don’t know. We do not know whether the American data will confirm analysts’ estimates, nor how the bond market will react in the opposite case. In the material available the only stock market close recorded is Tokyo’s: for other markets we have no data. And we do not know the extent of the pass-through from wholesale gas prices to European bills, which depends on contracts and indexation mechanisms that the market readings do not describe.
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