Halister News

(Bloomberg) -- The Fed’s balance sheet unwind is “being underestimated” and term premium will “come back with a vengeance and I think that’s going to be doing the tightening for the Fed,” George Goncalves, head of Americas fixed income strategy at Nomura, said on Bloomberg TV.

• “We’re going to learn that the balance sheet does matter”
• Goncalves said he sees 10Y yield rising to 2.4%, then 2.8%, citing fiscal resolutions as a catalyst that could help push rates higher; 10Y will face resistance at 2.6%, which global investors consider a barrier
  • Greater debt issuance to finance Washington’s policies and the Fed balance sheet unwind may help drive rates
  • “There’s going to be a time where we look up in Q4 where it’s potentially a combination of an ECB taper and the Fed unleashing its balance sheet,” which could all “line up to easily move the 10Y above 2.60%”
• If 10Y yield breaks through 2.6% and goes to 2.8% and “if equity markets start to react to higher rates, if credit markets start to react to higher rates,” then “we’ll see the resolve of central banks”
• Next week’s jobs report could be “critical”; if average hourly earnings “snap back” higher, “then watch out bond market because we’ll have a pretty big selloff”

To contact the reporter on this story: Alexandra Harris in New York at aharris48@bloomberg.net To contact the editors responsible for this story: Boris Korby at bkorby1@bloomberg.net Greg Chang