Video Series:

Macro asset-classes

“The Fed’s reaction function remains significantly more dovish than other easing cycles, and there remains room for inflation expectations to increase. Moreover, duration supply will remain heavy even as Treasury cuts auction sizes later this year, the pace of liability-driven investments and bank demand should slow, and valuations appear rich. We project 10-year yields will rise to 1.95% and the 2s/10s curve to steepen further by YE21.” Jay Barry, Head of USD Government Bond Strategy

Rate Hikes: Two hikes are now projected in 2023, and a significant number of participants see a hike in 2022 as well. If the Fed’s forecasts are realized, these hikes will happen against the backdrop of a tighter labor market, with inflation more persistently above target than at any other point in the last 30 years.

Yields: Yields are at the low end of their range and valuations are still rich relative to the drivers in our fair-value framework (exaggerated by technical). We remain bearish on 10-year Treasuries.

“Bearish steepening will seep into the curve. Tapering comes well before lift-off, and may be over faster than expected. Even with tapering, more reserves will flow to banks, more cash to money markets. The overnight reverse repo program (ONRRP) will only be a soft floor.” Alex Roever, Head of U.S. Rates Strategy