Is it all about the terminal rate?
Bank of America Global Research discusses the US 10y yields outlook.
"One of the most frequent client questions we tackle these days is: Why are US interest rates so low and can this persist? Clients point to strong growth - currently tracking 4.1% for 3Q - and CPI inflation running above 5%. But we think the rates market is focused on 2023 and beyond, and are increasingly questioning the ability of the Fed to deliver a substantial hiking cycle. The most important driver of long-term rates, in our view, is the market's perception of where the Fed will stop hiking after it begins its cycle of policy normalization," BofA notes.
"We have not changed our forecast for 10y rates at 1.9% by year-end, but downside risks to our forecast have increased. We also continue to like 2y-10y steepeners as better-carry alternative to an outright short in 10y rates," BofA adds.
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