‘Peak Pessimism’ on Fed Terminal Rate Favors Steepeners: BofA
Alert: HALISTER1
Source: BFW (Bloomberg First Word)
People
Carol Zhang (Bank of America Corp)
Shyam Rajan (Bank of America Corp)
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UUID: 7947283
(Bloomberg) -- UST 3s7s curve bear steepens “in every simulated scenario” where the market is shocked by a higher terminal Fed rate, and 3s7s steepeners should also benefit if Fed balance sheet runoff “has a larger impact on mortgages than initially suspected,” Bank of America strategists Shyam Rajan and Carol Zhang write in July 21 note.
- “Given our belief that we are already near peak pessimism on the terminal rate, the shock to markets from here will likely be a shift higher”
- After advocating 5s30s bear flattening “for some time now,” BofA says “it’s time to shift focus”
- Favored expression is 2y forward 3s7s conditional bear steepener
- Trade “should expire out of the money in a rally in case the terminal rate is shocked lower” and “benefit in any shift to the right” on their terminal rate grid
Alert: HALISTER1
Source: BFW (Bloomberg First Word)
People
Carol Zhang (Bank of America Corp)
Shyam Rajan (Bank of America Corp)
To de-activate this alert, click here
To modify this alert, click here
UUID: 7947283