Yield Curve
Highlights Duration: U.S. growth expectations have become overly pessimistic. A Q2 rebound will lead to higher global bond yields and a steeper U.S. Treasury curve. UST / Bund Spread: The extreme divergence between the European and U.S. economic surprise indexes is not sustainable, especially…
Highlights Chart 1Rate Hikes Lagging Wage Growth
Rate Hikes Lagging Wage Growth…
Highlights Chart 1Is Inflation Heating Up?
Is Inflation Heating Up…
Highlights Duration & Fed Policy: The longer risk assets can withstand rising rates, the higher will be the ultimate resting place for Treasury yields. Maintain below-benchmark duration on a 6-12 month horizon and add a short fed funds futures trade to profit from increased Fed hawkishness in…
Highlights Chart 1Keep A Close Eye On Financial Conditions
Keep A Close Eye On Financial Conditions…
Highlights Monetary Policy: Investors should fade the recent increase in expectations of a March rate hike. Still-low inflation and elevated policy uncertainty will keep the Fed on hold until June. Continue to position for a bear-steepening of the Treasury curve, driven by the combination of…
Highlights Rate Volatility: Forecast disagreement about GDP growth and T-bill rates will increase over the course of the year. This, alongside elevated policy uncertainty, will translate into higher interest rate volatility. Treasury Yields: Higher rate volatility should cause the term premium…
Highlights Chart 1Strong Growth & An Easy Fed
Strong Growth & An Easy Fed…
Highlights Inflation: Inflation will trend higher this year, but at a measured pace. The impact of a tight labor market and accelerating wage growth will be mitigated by deflating import prices. Even if the economic recovery remains on track, year-over-year core PCE inflation is likely to still…
Highlights Chart 1Upside Risks & Uncertainty
Upside Risks & Uncertainty…