Favor Longs in USTs Expecting 10Y Yield to Return to 1.60%: UBS
(Bloomberg) -- UBS prefers being long duration after recent Treasury sell off, for a number of reasons including the fact long end rates trade above the Fed’s terminal real rate forecasts, analyst Chirag Mirani writes in client note.
- Breakevens pointing to another decade of disinflation is another reason
- Says divergent monetary policy means the pace of U.S. rate increases will be gradual given dollar feedback loops and foreign demand should continue to be strong
- Calculates breakeven widening explains almost 20bps of the sell-off in Treasuries
- As this coincided with an uptick in oil prices, says U.S. TIPS breakevens could continue to widen and rates can move higher if oil makes more gains
- UST 10y rates may rise to 190bps if prices rise and may weaken to 1.50% if data weakens and/or oil price moves lower
- Lifts year-end forecast to 1.60% vs 1.35% prior forecast; recommends outright longs in 30y TIPS
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HALISTER1Source: BFW (Bloomberg First Word)
People Chirag Mirani (UBS Asset Management Japan Ltd)
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