Head - Fixed Income Strategy
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Following the positive news surrounding Brexit and US/China trade negotiations, we share our thoughts on how this frames our US rate outlook for the coming year.
Over the last 18 months, two major tail-risks affecting US Treasury (UST) rates had been uncertainties surrounding the UK’s withdrawal from the European Union (Brexit) and US/China trade negotiations. Markets were recently offered some relief on both fronts, helping 10-year benchmark UST yields reach as high as 1.95%, while further steepening the US yield curve.
In our November Bond Market Monthly, we revised our view on UST to neutral from overweight. We felt the rise in long-term UST rates witnessed over the last few months could be sustained. Indeed, the agreement on a “Phase One” deal between US and China should be sufficient to temper market concerns over rising tariffs and partially remove safe-haven positioning. In addition, the December 12 UK election results in favor of Prime Minister Boris Johnson should allow a Brexit deal to be ratified this month, lessening the negative macro fears if prolonged.
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