Halister News

(Bloomberg) -- Following March 16 FOMC meeting, “we continue to believe that market pricing is not stretched relative to Fed expectations,” BofAML strategists Shyam Rajan and Dora Xia say in March 18 note.

• While “easy to conclude that 2-5y yields have room to rise even if the Fed’s now ‘pessimistic’ dot projections are met,” that’s “a weak rationale to be short the front end”
• Market will assign “at best a 50% probability” to each of the hikes represented by median dot over next two years
• “Making 11-28bp on a 5y rate short when equities are at local highs, credit spreads are at tights, seems rather poor risk-reward”
• BofAML’s other core theme, that real rates are heading lower, got “two additional kickers” last week, from 30Y TIPS auction allotment data showing increased demand from pension funds and foreign investors, and from Yellen’s “repeated emphasis on lower neutral real rates”