Halister News

(Bloomberg) -- Rise in U.S. rates during first half of September “was likely new duration shorts/steepeners,” which are at risk because BOJ decision provided “little reason for a significant shift in demand dynamics” for long end of curve, BofAML strategist Shyam Rajan says in note.

• BOJ’s “soft commitment to a large purchase program plus a hard commitment to a level of yields” is “a green light for further Japanese private buying of foreign bonds”
• Demand for U.S. assets makes economic sense only at long end or in spread product, assuming a rolling 3m FX hedge
• Conclusion that early September steepening was due to new positions is based on performance of domestic total return funds (short duration during selloff) and CFTC futures positioning data showing new shorts by leveraged funds
• EUR rates curve should also flatten as ECB “like other central banks will be extremely wary to turn less accommodative and tighten prematurely,” strategist Ralf Preusser says in another section of note