Rates Weekly: Sight of relief or growth concerns?

EUR rates - Recap of the week:  High volatility in monetary policy expectations persisted, with markets shifting from rate‑cut scenarios to potential hikes for the Fed, ECB and BoE, driven by the surge in energy prices linked to the Middle East conflict. As the conflict continues, markets are pricing in an ECB and BoE reaction function increasingly forced to balance inflation control against downside growth risks.Long‑term government bond yields remain highly volatile, with a modest rally this week but levels still elevated, and curves generally flattening, except for the Gilt market, which is particularly vulnerable given its sensitivity to energy prices and persistent inflation. Long‑term inflation expectations remain well anchored, while OATs and BTPs have outperformed the Bund curve.Tactical view: Markets remain driven by geopolitical headlines and oil dynamics, and focus is increasingly shifting toward the ECB reaction function. We now expect a 25bp hike by June, with the April meeting remaining live, anchoring front-end rates at elevated levels. While volatility persists, asymmetry is building, with sharper but short-lived risk-on moves versus more persistent downside risks. This supports a more tactical approach, favoring front-end longs in forwards, fading steepening episodes, and positioning for normalization in Bund asset swap spreads.Insights of the week: EGBs supply outlook updateUS rates: We look at what a conflict end with Iran in control of the Strait may look like for markets.