HALISTER1: BofAML Turns Cautious on Curve Steepeners

BofAML Turns Cautious on Curve Steepeners

(Bloomberg) -- Coming into this year “we thought the curve could steepen in a risk-off move or significant selloff in rates,” but now, curve appears “directional with risk assets,” BofAML strategist Shyam Rajan says in note.
  • “While our structural views remain the same,” tactical investors should close outright steepeners and longer-term investors should convert them into conditional steepeners
  • Reasons include:
    • Futures positioning data show asset managers have significantly scaled down their flattening positions
    • Market-implied timing of next Fed rate hike is more than 12 months out, which historically has been associated with 5s30s flattening on risk-off days (such as today)
    • 5s “got extra boost in Jan. from the negative rate mania,” which is likely to fade if risk asset correct
  • Related story: Curve Flatteners ‘Unlikely to Work’ in 2016, BofAML Says
Alert: HALISTER1
Source: BFW (Bloomberg First Word)

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