Halister News

(Bloomberg) -- Fed “made a policy error” reflected in flatter curve, “and is now also trapped by falling inflation expectations and higher risk of recession,” Citi strategists Harvinder Sian and Jabaz Mathai say in note.

• “The mini-Japanification of the USD yield curve is not complete, so we see scope for rates to fall even further”
  • 10Y USTs “are carving out a new lower yield range” with 1.5%-2% fair levels, though they’ll move lower “if the Fed is proven to be in a bind”
• Sub-1% 10Y UST yields would indicate a recession probability higher than 50%; there isn’t one priced into curve at current levels
• Citi recommends buying 1y into 10y call spreads on UST 30Y
  • Trade positions “for a lower rate structure” and is preferable to swaptions despite offering less liquidity because 30Y swap spreads are at about -53bp