FICC
One macro framework for rates, FX, credit, and commodities, helping investors connect cross-market signals and position with clarity and conviction.
The volte-face being attempted by OPEC and non-OPEC producers in an attempt to keep oil prices above a pure-competition market-clearing level arises from the dire financial circumstances key states in both camps find themselves. Now begins the arduous process of determining just how much the Gulf Arab states within OPEC, led by the Kingdom of Saudi Arabia (KSA); and non-OPEC states, chiefly Russia, can cut oil production without giving shale-oil producers in the U.S. a huge windfall.
Global bond yields continue to grind higher, led by signs of improving growth, moderately higher inflation and central banks having difficulty staying credibly dovish. Maintain a below-benchmark duration stance.
Our Treasury yield fair value model suggests that the 10-year Treasury yield has an additional +19bps of upside. Stay at below benchmark duration.
As the U.S. median voter is shifting to the left, redistributive policy could come into play. A strong dollar helps to achieve this goal as it results in a bigger share of labor income in the economy. EM and commodity currencies could bear the brunt of the pain. Favor the euro on its crosses. Stay short CAD/NOK, but tighten stops.
There are two key risks that could derail a bear-flattening of the yield curve. The first is a Trump election victory, the second is a flaring of stress in the non-U.S. banking sector.
In this Weekly Report, we will discuss the outlook for BoJ and U.S. Federal Reserve policies after these meetings and the implications for bond markets in both countries.
Although the Fed is on track to hike rates in December, the credit cycle is far more advanced than the monetary tightening cycle. Position for a December rate hike by being short duration and in curve flatteners. Weakening corporate balance sheet fundamentals mean the long-term trend is for corporate spreads to widen.