JPMorgan Adjusts U.S. Rate Forecast ‘Significantly Lower’
(Bloomberg) -- JPMorgan moves 4Q 2017 UST 10Y yield target to 2.75% from 3%, reflecting “a weaker outlook on core inflation and reduced expectations around tax reform and infrastructure spending,” strategists led by Jay Barry say in May 20 note; forecasts for other tenors fall by 15bp-35bp.
- Inflation outlook “has changed markedly” over past month based on weakness in core CPI in March and April
- As for fiscal stimulus, odds are rising that it “gets pushed into FY18”
- Even so, UST yields “should rise in coming weeks,” because markets “continue to underprice the risk of further Fed tightening,” and yields “have consistently risen” ahead of FOMC meetings that include SEP and press conference; also, Treasuries “appear locally rich to other DM government bond markets”
- JPM maintains recommendation to hold shorts in 3-year sector and advocates 10s30s flatteners, as curve is ~3bp too steep adjusted for market’s medium-term Fed and inflation expectations
To contact the reporter on this story: Elizabeth Stanton in New York at estanton@bloomberg.net To contact the editors responsible for this story: Boris Korby at bkorby1@bloomberg.net Greg Chang, Elizabeth Stanton
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