US Rates: A paradigm shift – TDS

Despite significant uncertainty regarding policies and priorities under President Trump, research team at TDS believes that there is likely be a significant fiscal easing package, which should add upside risk to growth and inflation.

Key Quotes

“We expect 10yr Treasuries to rise to 2.75% over the next few months as the market prices in a fiscal package. We nevertheless expect a reach for yield to re-emerge in H2 2017 as higher real rates and a stronger dollar tighten financial conditions and ultimately put a cap on how high the nominal 10yr can go.”

“Meanwhile we also expect headline inflation to move higher over the next few months due to base effects. However, we think that the Fed will be somewhat slow to respond. This will stoke market concerns of the Fed being “behind the curve” on inflation and put steepening pressure on the curve and widening pressure on TIPS breakevens.”