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The Treasury Curve continues to flatter itself.
The gap between yields at 2 and 10 years hit a new low on Monday, highlighting the Federal Reserve's dilemma over what President Jerome Powell called the real embarrassing question in the collapse curve. : low returns in the long run. This reality is prompting several Wall Street companies to reduce or to question their end-of-year forecasts. Morgan Stanley's rate team said Friday that the peak of 2018 for 10-year Treasury yields is in the rear-view mirror.
New signs that Washington seems ready to The intensification of its trade war with China pushed investors towards riskier assets and towards the security of the US public debt, pushing the 10-year rate below 2.88% on Monday and yields to 2 to 10 years at their lowest since August 2007. the differences between 5 and 30 years and between 7 and 10 years are still close to the lows of several years.
The 2 to 10 year spread is expected to narrow to 30 basis points by the end of the year and 10 basis points by June 2019, according to Societe Generale.
"We do not think the curve is too flat and recommend positioning for further flattening," writes a team of bank strategists, including Subadra Rajappa, in a note. "We continue to see the UST 10 years becoming more and more sticky around 3%."
The worsening of commercial rhetoric and recent moves by the European Central Bank being "more accommodating" than expected have prompted JPMorgan analysts to reduce their end-of-year forecasts for 10-year rates of 3.3% to 3.2%. Combined with the firm's forecast for the 2-year note, seen at 3.05%, the forecast for the 2 to 10 year curve stabilizes at 15 basis points, according to a June 22 note written by Alex Roever. Kimberly Harano.
Investors and policymakers closely watched the shape of the curve because they were on guard to reverse it, a change that historically preceded recessions. Yet, despite increasing attention, so far, the Fed has not changed its normalization plans. This month, he increased his outlook to four total interest rate increases in 2018 compared to the three expected in March.
"It makes perfect sense in the world for the short game to come," as we raise rates, Powell told reporters in Washington on June 13. "The more difficult question is what happens with long rates."
Over the past two decades, Fed officials have probably never Gina Martin Adams, chief strategist of Bloomberg Intelligence's stock on Bloomberg, said Monday that her concern over flattening of the yield curve and potential reversal was being discussed publicly.
While Fed leaders are pondering this long-term rate riddle – that Powell has postulated in part at a historically low premium and global demand for US debt – Wall Street continues to double by recommending the US market. flattening to customers.
"We have a flattened bias on the curve in the United States and the prevailing FOMC tone of the FOMC makes it even less likely that the long end will sell," wrote Barclays strategists, including Rajiv Setia, in a note on Thursday. June 22nd. .
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