Expectations about where policy rates are headed have swung quite a lot since the beginning of the year. What was once a clear path for rate cuts has now been clouded by the risk of even stickier inflation. As a result, yields on government bonds—both in global and local markets—have recently reflected market caution.

What has caused the recent sell-off?

Peso government securities (GS) have not been insulated from the recent sell-off in the US, the largest bond market in the world. Inflation data in the US since the beginning of the year have offered little relief that the US Federal Reserve could be well on its way to start cutting rates this year. From expecting as much as six 25-basis point (bp) rate cuts within 2024, markets now only price-in less than three cuts by the Fed this year.