FICC

The US and core OPEC 2.0 are – wittingly or not – laying the groundwork for a price band with a floor and cap on oil prices – at $79/bbl and $130/bbl, respectively – “at least” to May 2024. This accommodates multiple goals for both. To meaningfully support policy, the US would need to scale up purchases to refill its SPR. We remain long the XOP and COMT ETFs for direct exposure to energy E+P equities and commodities.

This week’s report contains an update on the Treasury curve’s recent bear-steepening trend and a look at different measures of long-maturity Treasury valuation.

Special Report

In this Special Report, we introduce two strategies that use our Central Bank Monitors for global fixed income country allocations and currency trades. We find that using the Monitors in country selection helps improve the performance of a developed markets government bond portfolio. The CBMs can also help substantially minimize the drawdowns on a standard FX carry strategy.

In this insight, we look at whether the recent data justifies a shift by the BoC, and some potential trades.

In this insight, we look at whether the recent data justifies a shift by the BoC, and some potential trades.

There is a high probability that the global economy will tip into recession in the second half of 2024. A long yen position is an excellent hedge against that risk.

Despite higher uncertainty, our Brent price forecasts remain unchanged at just over $101/bbl for 4Q23 and $118/bbl for next year. We remain long equity exposure to oil and gas producers via the XOP ETF, and commodity exposure via the COMT ETF. We also remain long $100 Dec24 Brent calls and long 1Q24 Brent futures vs. short 1Q25 Brent futures in anticipation of stronger backwardation.

In this report, we present the quarterly review of the Global Fixed Income Strategy Model Bond Portfolio. The portfolio remains positioned for slower global growth momentum over the next 6-12 months, favoring government bonds over corporate debt. The portfolio also favors government bonds in countries flirting with recession where policy rates are too high (core Europe & the UK).

The recent bear-steepening of the US Treasury curve has been driven by the combination of stronger-than-expected economic growth and stable Fed rate expectations. Historically, such periods do not last very long, and we see the current bear-steepening episode ending soon. We also highlight an opportunity in Agency MBS.

This week's Insight gauges the potential of a dollar breakout or breakdown and suggests a few trade ideas.