Cross Asset Flash
For Treasuries and the Dollar, History Rhymes

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.

  • Two weeks ago we actively went short US 5yr notes (at 0.80%, along with some other expressions).  Having in addition to recommending shorts in 5s at 0.80%, we recommended paying 2y2y at 0.85% and short 5s on the 2s5s10s butterfly at -10bps (having just missed our -15bp entry the week before).

  • In the UK, we have been bearish for most of this year. We are focusing shorts on 10yr yields and via paying 2y1y SONIA.

  • In the Euro-area, Head of European Rates Strategy Giles Gale wrote about The end of the bund supercycle, a title that pretty much says it all. We are most bearish the long end and in addition to outright shorts we think 10s30s can steepen further (a long held view).

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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This is Non-Independent Research, as defined by the Financial Conduct Authority. Not intended for Retail Client distribution. This material should be regarded as a marketing communication and may have been produced in conjunction with the NatWest Markets Plc trading desks that trade as principal in the instruments mentioned herein. All data is accurate as of the report date, unless otherwise specified.

This communication has been prepared by NatWest Markets Plc, and should be regarded as a Marketing Communication, for which the relevant competent authority is the UK Financial Conduct Authority.

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John Briggs
Global Head of Desk Strategy
+1 203 897 4689
Brian Daingerfield
Head of G10 FX Strategy, US
+1 203 897 6806
Alvaro Vivanco
Emerging Markets Strategist
+1 203 8974896
Paul Molander
Emerging Markets Strategist
+1 203 897 4892
Jan Nevruzi
US Rates Strategist
+1 203 897 2884


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