Halister News

(Bloomberg) -- Benchmark 10-year Treasury yields should rise to between 2.5% and 3% in 2018, boosted by uncertainty over policy style of next Federal Reserve chair and low odds of another recession worldwide, says Paul Donovan, global chief economist for UBS Wealth Management.

• “Veneer of uncertainty” over next Fed chair is pushing yields higher, Donovan says in telephone interview from Los Angeles
  • NOTE: 10Y yields broke through key level of 2.4% this week, see related story on whether that move might continue
• 2.4% mark for 10Y yields is “a psychological barrier that’s not that significant in reality” and is “short-term noise in the markets,” Donovan says
  • 10Y yields significantly below their economic value of 4.5%-5%, where they would normally be in a “perfect world” 
• UBS Wealth doesn’t have a final pick for Fed chair in mind; Donovan says Yellen has been a “competent, reputable chief of the Fed and having continuity at the Fed would be very appropriate” 
  • “She’s been flexible in her approach -- dovish when needed and she also would be hawkish if needed”; Jerome Powell “would be a good alternative” to Yellen
  • “If the next Fed chair is not Yellen, there’s potential for lingering uncertainty about the Fed’s monetary policy style that may keep yields elevated”
  • NOTE: Yellen Out of Fed Chair Race, One Source Tells Politico
• “There’s very little chance of a recession next year” caused by central bankers tightening too much or economies overheating; however, if policy makers make the mistake of tightening too aggressively, that may lead to a significant downturn in 2019
  • Fed will probably raise interest rates by a quarter-point in December and again next year
• “We are still in a risk-on environment, with reasonable economic growth and a very, very low chance of recession” worldwide, which “provides a degree of support to investors who wonder whether they should have a certain amount of risk in their portfolio”

To contact the reporter on this story: Vivien Lou Chen in San Francisco at vchen1@bloomberg.net To contact the editors responsible for this story: Benjamin Purvis at bpurvis@bloomberg.net Brian Chappatta

--DEREK WALLBANK

(Bloomberg) -- Following are forecasts for today’s economic releases as compiled by Bloomberg News.

• KC Fed 17; range 15 to 19 (6 estimates)

To contact the reporters on this story: Chris Middleton in Washington at cmiddleton2@bloomberg.net; Vincent Del Giudice in Denver at vdelgiudice@bloomberg.net To contact the editors responsible for this story: Alex Tanzi at atanzi@bloomberg.net Kristy Scheuble

(Bloomberg) -- Following are forecasts for today’s economic releases as compiled by Bloomberg News.

• Pending Homes 0.5% m/m; range -2% to 2.5% (27 estimates)
• Pending Homes -4.2% y/y; range -4.6% to -0.9% (3 estimates)
• Pending home sales last increased in June
• "Existing home sales have cooled from the beginning of the year, primarily on reduced supply”: Bloomberg Intelligence

To contact the reporters on this story: Chris Middleton in Washington at cmiddleton2@bloomberg.net; Vincent Del Giudice in Denver at vdelgiudice@bloomberg.net To contact the editors responsible for this story: Alex Tanzi at atanzi@bloomberg.net Kristy Scheuble

(Bloomberg) -- BofA client survey found that 80% of respondents believe Libor should continue with a “more robust methodology,” while 73% believe the unsecured benchmark should continue alongside a risk-free alternative, BofA strategists Ralph Axel, Mark Cabana and Sebastien Cross say in note.

• Roughly 75% of respondents assigned a “less than 50% probability” that Libor will be phased out by end-2021; 60% said liquidity was a “very large or large impediment” to implementing alternative reference rate
• Almost three-quarters of respondents said they would transition hedging activity away from Libor when there’s greater clarity or when liquidity in instruments based on alternative rates “is satisfactory”
• Almost three-quarters of respondents said most likely to shift hedging, trading activity to OIS; asset managers indicated “greatest likelihood of shifting into cash and futures activity”
• Three-quarters of respondents believed “OIS+spread” would be Libor fallback in the event the rate is discontinued, “but the vast majority of respondents believed it would be problematic”
• Majority of respondents indicated a “high” or “medium” conviction that phase-out would cause longer-dated Libor-OIS widening; 69% had similar convictions for Libor-OIS curve steepening
• One-third of respondents said they planned to change hedging activity before 2021
• About two-thirds of banks expect hedging costs to increase with Libor phase-out, “with costs likely passed onto customers”; 56% of asset managers think hedging costs won’t increase with Libor transition
• More than half of asset managers suggested they’d unwind Libor positions ahead of any Libor disruption
• Survey based on responses from 164 clients conducted in first few weeks of October, with asset managers and banks comprising 78% of respondents and majority USD-focused

To contact the reporter on this story: Alexandra Harris in New York at aharris48@bloomberg.net To contact the editors responsible for this story: Benjamin Purvis at bpurvis@bloomberg.net Greg Chang