US Rates: Fall in optimism might be a selling opportunity – BNPP

Analysts at BNP Paribas continue to expect higher rates in 2017 and welcome the fall in rates as an opportunity to reset shorts.

Key Quotes

“Why?

• Global growth: Last November, we were expecting fiscal stimulus in the US to drive rates up. With stronger growth and inflation in the US and a simultaneous global upswing, we remain confident in our yield targets.  
• Cleaner positioning: The most recent futures positioning data reveal that the market is still short, but less so than before the FOMC meeting.
• Balance sheet normalization: We continue to expect the FOMC to communicate its intentions and build momentum to lowering the size of its balance sheet by reducing reinvestments from early 2018.”  

“In the short term, optimism surrounding Trump’s policy agenda appears to be fading. We are waiting for the 10y US Treasury to test 2.31% – a level it has resisted three times this year.”