HALISTER1: U.S. Real Rate Short Has Support Beyond Policy Outlook: BofAML

U.S. Real Rate Short Has Support Beyond Policy Outlook: BofAML

(Bloomberg) -- BofAML last week recommended scrapping bets on lower real yields and scaling into real rate shorts based on “the mix between a possible change in central bank purchase programs (particularly by the BoJ) and increasing likelihood of fiscal stimulus in the U.S.,” strategists led by Shyam Rajan said in note.
  • The shift also has support from these factors, they said:
    • Potential for risk-parity deleveraging driven by negative turn in correlation between stocks and nominal yields; “risk parity underperformance has historically meant higher real rates and lower breakevens”
    • Strong inflows to TIPS funds YTD “despite lackluster breakeven performance,” a sign investors “are chasing price action in real yields”
    • Declining Fed custody holdings of USTs, pointing to a “gradual unwind of reserve demand” that has benefited U.S. real rates over last 15 yrs
Alert: HALISTER1
Source: BFW (Bloomberg First Word)

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Shyam Rajan (Bank of America Corp)

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