Halister News

(Bloomberg) -- UBS prefers being long duration after recent Treasury sell off, for a number of reasons including the fact long end rates trade above the Fed’s terminal real rate forecasts, analyst Chirag Mirani writes in client note.

• Breakevens pointing to another decade of disinflation is another reason
• Says divergent monetary policy means the pace of U.S. rate increases will be gradual given dollar feedback loops and foreign demand should continue to be strong
• Calculates breakeven widening explains almost 20bps of the sell-off in Treasuries
  • As this coincided with an uptick in oil prices, says U.S. TIPS breakevens could continue to widen and rates can move higher if oil makes more gains
  • UST 10y rates may rise to 190bps if prices rise and may weaken to 1.50% if data weakens and/or oil price moves lower
• Lifts year-end forecast to 1.60% vs 1.35% prior forecast; recommends outright longs in 30y TIPS