|Strategy & Sales|
05 May 2021 15:36
Global Head of Desk Strategy
+1 203 897 4689
Head of G10 FX Strategy, US
+1 203 897 6806
Emerging Markets Strategist
+1 203 8974896
Emerging Markets Strategist
+1 203 897 4892
US Rates Strategist
+1 203 897 2884
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For Treasuries and the Dollar, History Rhymes
Using the 2016 to 2018 period as a roadmap for 2021
Starting three weeks ago, in our piece Goldilocks and the Three Bears, we began a shift to an increasingly bearish stance on sovereign bonds in the UK, US, and Europe. We see higher sovereign yields in each region, but across all three we have slightly different expressions.
In this note, we discuss our preference for shorts in the belly of the US curve and how price action through the end of the post-GFC Fed easing cycle (2013 – 2018) has influenced our thinking on US rates, as well as the USD. It looks increasingly clear that, despite Powell’s ultra-dovish insistence last week, the beginning of the end of the Fed’s post-pandemic easing cycle is nigh. While recent price action, particularly in 1Q 2021, has clear similarities to the 2013 taper tantrum, we think the 2016 to 2018 period is a better analogy for 2Q 2021 and beyond. This argues for shorts in the belly and a flattening bias for the UST curve. On the USD, the wider global growth context (in this case, a positive one) and speed of any bearish UST / flattening move are critical to assessing how higher yields may impact the USD.
Please see the attached pdf for our full analysis
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