Firstly on rates:

  • Dovish Fed and enhanced forward guidance to keep front end & belly pinned near zero. we expect further upward pressure on 10Y rates next year to 1.5%
  • EU: Near term. Bunds are likely to remain well supported given very negative net issuance in EU rates, cheap ASW valuations and risk of disappointment on growth and inflation versus consensus in Q4.

The economy:

  • From rolling lockdowns and a double-dip recession, we anticipate a gradual recovery this year
  • Policies in the meantime will likely remain supportive

And, FX:

  • We expect the risk sentiment to remain the main driver in G10 FX in the near term, weighing on the USD until the market starts pricing Fed hikes
  • Such a scenario could prove too positive, but we think it will likely take some time for a market reality check. In this context, we recommend tactical and relative-value trades and avoid crowded positions.
  • We do expect EUR/USD to strengthen further, but this is subject to a number of risks.
  • We expect USDIJPY to grind lower, led by USD weakness and an improvement in Japan's BoP.
  • We are constructive on the "high-beta' currencies.