9 Apr 2015
Limited upside in the curve left on treasuries? - RBS
FXStreet (Guatemala) - William O'Donnell, Head of US Treasury Strategy explained that a few weeks ago he chatted about the curve and the collapsed state of term risk premium.
Key Quotes:
"Since that time we've seen new life breathed into long end steepening trades."
"A clear catalyst behind the recent bounce in the curve was the Fed and their updated thinking that the pace of rate hikes will likely be gradual while the terminal rate may be lower than in past cycles. Hearing that, the belly clawed back lost ground, outperforming every other benchmark."
"But there are probably limits as to how much steeper the curve can go based on this—yet my technical work says that the curve has plenty of statistical bandwidth to steepen further."
"So where could the next push come for curve steepeners? I suspect that the push will come from a rebuild in inflation risk premium, given what I see in the charts."
Key Quotes:
"Since that time we've seen new life breathed into long end steepening trades."
"A clear catalyst behind the recent bounce in the curve was the Fed and their updated thinking that the pace of rate hikes will likely be gradual while the terminal rate may be lower than in past cycles. Hearing that, the belly clawed back lost ground, outperforming every other benchmark."
"But there are probably limits as to how much steeper the curve can go based on this—yet my technical work says that the curve has plenty of statistical bandwidth to steepen further."
"So where could the next push come for curve steepeners? I suspect that the push will come from a rebuild in inflation risk premium, given what I see in the charts."