HALISTER1: UST Curve May Flatten Should Fed’s Dots Drop, BMO Says

UST Curve May Flatten Should Fed’s Dots Drop, BMO Says

(Bloomberg) -- UST curve could flatten on any drop in Fed’s dots, as well as any hawkish speak from Yellen’s press conference tomorrow, BMO strategists Aaron Kohli and Dan Belton said in note.
  • Front-end will primarily respond to Fed’s “timing impulse,” the result of which will be flattening, especially if 25bp are removed from all median SEP rate projections
    • BMO looking for one rate hike to be removed from 2016 dots, since there’s no additional time for hikes; also expect at least one hike cut from 2017; would be “reasonable” to see 2018 dots fall by 25bp
  • Depending on how strong the Fed emphasizes December, there may be “minor curve moves”
  • Looking at year-end, Fed may be “facing a hangover” from November election, along with possible stresses on financials as Libor rises
Alert: HALISTER1
Source: BFW (Bloomberg First Word)

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Aaron Kohli (Bank of Montreal)
Daniel Belton (Bank of Montreal)

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