Finn Øystein Bergh
Chief Economist & Strategist
At the outset of 2023, the long-predicted recession had yet to materialise. The main concern was inflation, which due to the Ukraine war and supply-chain bottlenecks had shot up and threatened to become entrenched. This had brought about a massive rise in interest rates, with the Fed Funds rate being hiked from zero to 4.25% and the yield on US 10-year US treasuries rising from 1.51% to 3.88%. How high would rates go?
Indeed, the rise continued for a couple of months into 2023. In March, losses on long-dated bonds reached such a magnitude that it led to a collapse in several US regional banks, which had to sell bonds at a loss to finance withdrawals. Shortly thereafter, Swiss banking giant Credit Suisse failed to survive as an independent bank.
The turmoil in the banking industry subsided, but the market did not become less sensitive to interest rates. The correlation between monthly changes in the US 10-year yield and the S&P 500 was a remarkable -0.78 this year, meaning that stocks systematically fell in months when interest rates rose, and vice versa. In 2022, it was -0.53 and in 2021 only -0.18. Even the STOXX Europe 600, logically more independent of US interest rates, had a similar correlation of -0.63 last year.
In a fascinating twist of fate, however, the US 10-year yield ended the year exactly where it started: 3.88%.
Read Finn Øystein Berghs' summary of the financial markets and the economy in 2023:
