HALISTER1: 10Y UST to Hit 3% by 2Q as Rates Undershoot Fiscal Risk: BofA

10Y UST to Hit 3% by 2Q as Rates Undershoot Fiscal Risk: BofA

(Bloomberg) -- Rates have “barely begun to price the upside risks from fiscal stimulus,” BofA strategists led by Shyam Rajan write.
  • Fed projections, risk premium, reflation from abroad and positioning support view for 3% 10Y UST yield by 2Q
  • Asset managers have vulnerable long positioning; good data could place March on the table as the market increases 2017 rate hikes from 2.5 to 4, which could trigger “substantial” unwind of asset manager longs
  • Fed’s projections expected to turn from a “ceiling to a floor for market expectations,” theme expected to continue into March FOMC
  • Bond market risk premium has further room to rise
  • Data in Japan and Europe are improving as reflation forces from abroad pick-up, arguing for “synchronized global bond sell-off”
  • Main risk factor: a risk-off event with equities currently at stretched valuations poses
Alert: HALISTER1
Source: BFW (Bloomberg First Word)

People
Shyam Rajan (Bank of America Corp)

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