FICC
| Monetary Policy
Analysis of the Fed and other major central banks, and what their decisions mean for bonds and rates.
US Treasury yields have fallen below our fair value estimate as investors rotated out of AI equities and into fixed income. We lay out why near-term inflation risks argue for a rebound, and the tactical trades we initiate to position for it.
The Fed will hike rates at a pace of 25 bps per quarter until either falling inflation or tighter financial conditions cause it to stop.
Europe has 99 problems, but the paucity of bearish views about the Old Continent is not one of them! And yet, somewhat shockingly, European assets have outperformed US assets over the past two years. Sure, markets make mistakes. But the macro graveyards are littered with investors who thought they were smarter than the markets. In this report, we suggest that Europe is on a cusp of significant structural reforms that will unlock value in its services sector. And that while many of the challenges are real, they’re either well understood or priced in.
US inflation came in hot for the second consecutive month in September, though probably not hot enough for the Fed to move its next rate hike up to the October meeting.
This morning’s jobs report serves to underscore that the labor market is not a source of inflationary pressure and therefore of second-order importance when it comes to the Fed’s near-term decision making.
Politics, wars, a global tightening cycle, doubts over AI capex: the wall of worry keeps rising. But the spark that would topple risk assets is missing. Our Q4 FICC outlook explains why to stay long risk, and where the danger lies.
Core US inflation is still running above target. But this morning’s data revisions reveal that the gap is not nearly as large as it appeared yesterday.
The Fed is unanimous in expecting a mild tightening cycle of no more than 75 bps, but that outcome is contingent on a rapid drop in core inflation in 2027.
August’s 0.3% increase in core CPI breaks inflation’s 3-month downtrend and is likely hot enough for the Fed to hike rates when it meets next week.