HALISTER1: UST MORNING CALL: Fed Policy Weighed Post-Brexit; Month-End Due

UST MORNING CALL: Fed Policy Weighed Post-Brexit; Month-End Due

(Bloomberg) -- Market focus continues to be on Brexit fallout and the implications for the Fed’s next policy step.
  • RBS write in note that since the Brexit vote result was so underestimated, there is no poll, bookie or “expert” to be trusted into U.S. elections; suggests great deal of uncertainty ahead
    • Market unlikely to experience sustainable sell-off; use any meaningful dip to buy USTs; see larger dips being 1.25% in 5s, 1.75% in 10s
  • Analysts are biased toward long positions in USD rates duration, curve flatteners; both TD Securities and Deutsche bank revise down forecast for 10Y rates
  • Continue to favor flatter curve, especially 5s30s, as foreign and domestic accounts will reach for yield; expect flows from Brexit fallout, month-end duration adjustments, Seaport Global’s Tom Digaloma writes
    • Barclays month-end extensions for U.S. Treasury is +0.09 yrs
  • HSBC highlights in a client note three reasons why FOMC will react to Brexit by adopting more cautious policy path: weakness in investment spending, low estimates of the neutral Fed funds rate, greater uncertainty
    • Sees Fed raising rates in Dec. 2016, then limiting policy changes to one 25bp rate hike in 2017
  • Technicals:
    • Resistance: 134-07 (June 24 high)
    • Support: 132-14/12 (50% retreat of June 24 move, close)
Alert: HALISTER1
Source: BFW (Bloomberg First Word)

People
Tom Di Galoma (Seaport Group LLC/The)

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