Currently viewing the tag: "Treasuries"
View: View any further UST curve steepening opportunistically, like flatteners vs. 5yr
Resurgent equity markets continue to take centre stage with a raft of analysts’ papers regurgitating the likely benefits of more quantitative easing, cobbling this move together with evidence of economic green shoots (which higher equity markets supposedly tell us are there). That other favourite topic, what all this means for bond yields, is also back in the spotlight, centring on the fact that this uptrend in stocks will invariably trigger rotation out of safe haven bond markets into riskier assets, as evident during both previous instances of QE. But with the Fed committed to holding rates low until mid-2015 at the earliest now, with an additional bias for directing policy to flatten the curve via the twist, it’s difficult to see this juncture as a significant inflection point for core yields. Indeed, higher yields are one thing that would kill a recovery in a still debt heavy economy where dynamics are still ultimately deflationary. Rather it should exert shorter-term corrective pressures within the broader trading range, particularly at the longer-end of the curve, before yields edge lower once again.
Full report below…
View: Euro$ strip to continue to steepen, U2/U3 spread could double
While the shift in tone of the March FOMC statement may have been subtle the markets reaction has been fairly pronounced with yields shifting up across the curve. The adjustment is not too surprising, in fact it’s what we have been saying for many weeks, namely that the US economy is improving, led by the labour market, which the Fed is slowly starting to acknowledge. There was also some understated acceptance that there were fewer risks emanating from the external environment although these still posed ‘significant downside risks’, a tone that is overkill in our view. Of course the 2014 language remains and the programme to reinvest maturing paper into the longer-end of the curve continues, with just one dissenter in the form of Lacker.
Full report attached……
Related articles
- Fed Sees Slightly Improving Economy (nytimes.com)
- Glacial FOMC Change is All Dollar Bulls Need (blogs.wsj.com)
