Halister News

(Bloomberg) -- Steepening is likely based on “accommodative Fed policy via lower 1y1y rates, weaker S&P and higher BE inflation,” and 5s30s steepener carries positively by about 2.1bp over next 3 months, TD strategists led by Priya Misra say in note.

• TD fair value model incorporating U.S. growth momentum, inflation expectations and risk premium, and global bond yields suggests 5s30s is 5bp too flat (with 12bp standard deviation of residual)
• Because near-term risks to steepener include “ongoing decline in global yields,” they recommend hedging with long UST 10Y vs German 10Y, as spread is near historical wides
• Risks also include safe-haven bid that flattens curve because market “has historically had a tough time being able to price in the next hike beyond 13 months except when the Fed was doing QE”