Markets ‘Too Sanguine About Intermediate Rates,’ Nomura Says
Alert: HALISTER1
Source: BFW (Bloomberg First Word)
People
George Goncalves (Nomura Holdings Inc)
Zhongshan Wen (Nomura Holdings Inc)
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UUID: 7947283
(Bloomberg) -- Because yield curve is unlikely to “fully flatten” as in previous Fed hiking cycles, Nomura recommends paying 5y5y (anticipating return of MBS convexity hedging along with term premia) and receiving 3y1y to capture Fed’s long-run dot, Nomura strategists George Goncalves and Sam Wen say in July 26 note.
- “This cycle is an anomaly” because Fed balance-sheet unwind “will see a return of term premia/higher long-end rates”
- CFTC Commitments of Traders data show “large deviations” in speculative positions in TU and TY, “a rare occurrence”
- Speculators are extremely long the 10Y sector and extremely short the 2Y sector, a position stance that occurred twice before in the last 20 years, coinciding with the end of Fed hiking cycles
- Different this time “is that the curve is not at the flattest level that it could reach if we are tracking normal Fed hiking cycles”
Alert: HALISTER1
Source: BFW (Bloomberg First Word)
People
George Goncalves (Nomura Holdings Inc)
Zhongshan Wen (Nomura Holdings Inc)
To de-activate this alert, click here
To modify this alert, click here
UUID: 7947283