BofA Says Revived Prospect of U.S. Tax Cuts Favors Steeper Curve
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Source: BFW (Bloomberg First Word)
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Shyam Rajan (Bank of America Corp)
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(Bloomberg) -- The biggest change in fiscal policy expectations has been the prospect of a bipartisan tax deal, which could eliminate the need for a deficit-neutral plan and raise projected 2018 deficits by $400 billion, BofA strategist Shyam Rajan says in report.
- A 1% deterioration in forward deficits to GDP steepens the 5s30s yield curve by 15bps, according to BofA’s estimates; they recommend steepeners in 2s5s and 3s7s portion of curve
- Fiscal easing via tax cuts could be met with a Fed that’s “behind the curve” in adjusting monetary policy, creating the potential for “highly binary” outcome and trading opportunities
- Larger deficits not offset by Fed tightening favor inflation breakevens
- BofA shifted view to long breakevens almost a month ago, when 5Y rate was at 165bps; it’s now 177bps
- Hold long position with target of 200bps, which would be highest since March, BofA says
Alert: HALISTER1
Source: BFW (Bloomberg First Word)
People
Shyam Rajan (Bank of America Corp)
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To modify this alert, click here
UUID: 7947283