“As Government Bond yields adjust to an expanding global economy and a bias towards looser fiscal policy, investors are closely watching monetary policy signals. The Fed has led the way in terms of monetary policy tightening, with the ECB and BOE now challenged to respond to evolving economic fundamentals” says Chris Rhodes, Global Head of Rates at ICE. “In 2018 we will continue to create new products and solutions to meet customer needs against a dynamic global backdrop.”

In the US:

Market participants are focused on the pace of rate rises, with the Federal Reserve flagging ongoing hikes as healthy economic growth continues. February unemployment remained at a 17-year low at 4.1%, and along with wage growth, is expected to put upward pressure on inflation.

The futures market is pricing in three additional 25 basis point hikes - with 33% chance for a fourth - on the back of positive economic growth, a strengthening labor market, stimulative fiscal policy and a brightening global outlook.

Further monetary policy action hinges on inflation - which was stronger than expected at the start of the year - and the impact to growth from spending, tax and trade policies of the Trump administration. Treasury yields rose early in 2018, with the 10 year yield around 2.9%.

In the UK:

Interest rate policy will hinge on negotiations with the EU over the final form of Brexit, which will impact economic growth, the exchange rate and trade costs in the UK.

The UK economy expanded at its slowest rate in five years during 2017, and the demand side of the economy remains sluggish. However GDP grew faster than expected in the final quarter of 2017, and policy makers have voiced concern that the economy may not be able to grow as quickly as in the past without triggering inflationary pressures.

This has opened the door for a shift in policy rhetoric and a possible rate rise sooner rather than later in the year, as inflation remains above-target, global growth is strong, and the sterling notches robust performance.

"With Eurozone growth at its highest in a decade and positive economic momentum, the rate cycle may slowly be turning in Europe..."

An uncertain backdrop regarding Brexit also presents opportunity for market speculators, with potential for volatility in Sterling and the Official Bank Rate. Critically, it will be the U.K.’s relationship with Europe that will determine its long term outlook, and whether it will benefit from the global acceleration of growth.

In the EU:

With Eurozone growth at its highest in a decade and positive economic momentum, the rate cycle may slowly be turning in Europe, with some forecasts suggesting a rate hike in the first half of 2019.

In late January, the European Central Bank announced that it would continue its Quantitative Easing program, with net asset purchases at a new monthly pace of €30 billion until the end of September or beyond, and until it sees a sustained adjustment in inflation consistent with its targets.

While ECB policymakers have stated key interest rates will likely remain at current levels for an ‘extended period’, the case for upward pressure on rates is supported by recovering labor markets, a strong Euro and strengthening global backdrop.

Macro risks for rate markets include German coalition talks, while some analysts question whether a strong euro could offset improving external demand. Inflation is also seen as a potential risk, given economies like Germany are preforming well with rising wage pressure - a dynamic countered by most Eurozone members, more concerned about growth and job creation. Trading volumes in ICE’s European interest rate products have continued to grow ahead of industry averages, with YTD volume up 29% YOY.