The President of the European Central Bank (ECB), Christine Lagarde, has recently shown herself to be very determined when it comes to raising interest rates in the second half of the year.

However, the sell-off on the bond markets and the associated significant increase in yields show that the market has already completed the turnaround in interest rates without the central bank.

It is still leaving its deposit rate, which is now the key interest rate, at minus 0.5 percent, while inflation is over 7 percent and the yield on ten-year Bunds is hovering around the 1.0 percent mark.

Markus Fruehauf

Editor in Business.

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“All central banks are lagging behind, but the ECB is the furthest behind,” says Bernhard Matthes, portfolio manager in asset management at the Bank for Church and Caritas (BKC).

He assumes that even the American Federal Reserve (Fed) will give up its tightening course in the second half of the year because the economy and inflation will cool down and the protests on the markets will grow.

In the minutes of the meeting on May 3rd and 4th, which have now been published, the Fed officials rated the American economy as strong and further rate hikes as likely.

For Michael Hünseler, head of active bond management at MEAG, Munich Re's asset manager, an interest rate hike by the ECB in July by 0.25 percentage points (25 basis points) is already agreed.

the capital markets are currently signaling very clearly that "too late, too little", he says in an interview with the FAZ

Stephan Kuhnke, head of investment management at the Swiss asset manager Bantleon, comes to a clear conclusion: "The ECB misjudged the inflation situation and is now definitely lagging behind developments." Like the Fed, it will therefore have to turn things around sharply when it comes to key interest rates.

Bantleon expects the first rate hike of 25 basis points in July, which should be followed by three more this year.

Kuhnke expects the deposit rate to be up 0.5 percent at the end of the year.

"If the economy remains robust in the second half of the year, an even sharper rise in key interest rates cannot be ruled out," he adds.

But the economic prospects are currently poor.

Paul Jackson, senior investment strategist at US asset manager Invesco, believes a recession in Europe is possible.

"That's why I'm surprised by the latest statements from the ECB, which point to a tightening of monetary policy," he says.

"Probably the central banks have been far too accommodative for too long and now they need to be even more determined." But the Bank of England, which has been much more aggressive than the Fed, has already changed its tone, according to Jackson.

She expects no growth in the UK for the next two years.

"I assume that the Fed will raise interest rates less this year than they and the markets are currently expecting," says the Invesco strategist.