UST MORNING CALL: U.S. Rates ‘Are Still Too Low’
(Bloomberg) -- “U.S. rates are still too low, the curve over time is likely to flatten, the belly on flies should cheapen with it (within ranges), and the policy divergence theme between the U.S. and the world may now reassert itself,” RBS strategists John Briggs and Kevin McNeil say.
- “This view is not without risk,” but if proven wrong, it will be by U.S. economy, “not the ECB or BOJ and an attempt to predict the second order effects of policy reactions”
- Other observations from strategist morning notes:
- BMO (Aaron Kohli): For UST 2Y yield, “we have our eyes on the 98.7 bp level for the next move higher, but note that momentum indicators are oversold. Our view will harden when we get confirmation from moving average indicators”
- “Currently, the 14-DMA is approaching the 100-DMA from below, and if it crosses above, that would support additional selling. However, the 50-DMA recently crossed below the 10-DMA, which when combined with the oversold momentum, could mean the selling pressure will pause and the market may take stock ahead of the Fed”
- CRT (David Ader): “The Treasury market sold off on Thursday, and it was price action that at least justifies the bearish bias we’ve been holding this week”
- The 10-year yield pressed as high as 1.95% before retracing moderately. We are holding our bearish call, but are open to a round of consolidation between 1.91+% and 1.95%. As we approach next week’s CPI and the anticipated +0.1% core gain we’ll focus on the 2.02% level’’
- Marty Mitchell (independent): “We should expect to see choppy trading across markets on better two-way flows as participants adjust their views to the new central bank landscape. There is a growing narrative that is questioning the efficacy of central bank policies and that goes so far as to say that policy makers have lost credibility and control. We are sympathetic with this view”
Alert:
HALISTER1Source: BFW (Bloomberg First Word)
People Aaron Kohli (Bank of Montreal)
David Ader (CRT Capital Group LLC)
John Briggs (RBS Securities Inc)
Kevin McNeil (RBS Securities Inc)
Marty Mitchell (The Mitchell Market Report LLC)
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