HALISTER1: UST 10Y Yield to End 2016 at 2.75% as Market Looks Past Fed: DB

UST 10Y Yield to End 2016 at 2.75% as Market Looks Past Fed: DB

(Bloomberg) -- Markets will look through Fed meeting this week to focus on new administration and potential for higher inflation to precede stronger real growth, Deutsche Bank analysts led by Dominic Konstam and Aleksandar Kocic write in Dec. 10 note.
  • Bear steepening of curve to push UST 10Y yield to 3.10% by end-2017 after peaking near 3.6% mid-year; 5y5y forward BE inflation can reach 3%, especially if Fed embraces potential new policies under Trump
    • “Robustness” of BE inflation projection should allow for a “surprisingly soft” USD response to rise in nominal yields; USD would “struggle” for EUR/USD to hit parity, USD/JPY to hit 120
  • Market would likely ignore changed Fed forecasts to inflation or growth without corresponding shift higher in long-term dots
  • “The most important policy impact from the new Administration for the market is the potential shift in the corporate tax code and the potential impact on inflation”; a cut should be more inflationary in short-term
Alert: HALISTER1
Source: BFW (Bloomberg First Word)

People
Aleksandar Kocic (Deutsche Bank AG)
Dominic Konstam (Deutsche Bank AG)

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