On the 1st day of XMAS my Tech-A-Mentalist gave to me ...
A fan fav this time of year are the 12 charts of XMAS from Citi FX group. Artwork is superb and occasionally they have better-than-average results and while in the game, these guys rates views were always thought provoking and fun-ter-taining. The past year was NO exception and they were quick to point out how well they did.
On RATES 2021 VIEW:
US Yields 10 year Breakevens up towards at least 2.21%; 10 year yields to at least 1.30% and the 2’s 5’s curve to at least 48 bp’s and possibly 80 bp’s
Result:
10 year Breakeven hit a high of 2.78%; 10 year yield went to 1.77% and the 2’s 5’s curve hit exactly +80 bp’s
This enabled them to give themselves a GRADE of A+ and when combined with everything it was they forecast (EURUSD, USD, AUD, NOK, Brent, Copper, Bitcoin, ADXY, SKor and China, S&P, Naz and housing),
…Overall a decent year across markets somewhat spoiled by a truly horrible Call on the USD …
That was then and this is now … no sense crying over spilled USD milk and with a tailwind from 2021s RATES call, jumping right TO 2022s rates related slides. This years edition actually has couple slides and generally speaking, they are seeing / saying
Yields: US 2’s 5’s curve - Pivotal levels need to be watched. We are concerned that a policy mistake may be coming.
30-year Yield and 30-year Breakevens. Danger of lower levels in both but particularly real yields …
On TO the first chart of XMAS — 2s5s:
That final bullet is worth reiterating
2 months ago it looked clearly like we were on track for the break above 80 bp’s- now we are not nearly as confident- This could suggest that after tapering comes roll-off rather than liftoff- OR a policy mistake …
OKIE DOKIE. On to the back end of the yield curve, they’ve seemingly only identified levels to watch but not gone too much further out on the limb in as far as what next (allowing full scope to say I told ya so and give themselves another A+ no matter what happens? at least MY read based on the number of times they’ve used the word COULD)
They go on to detail HIGHER OIL (Brent to $100?) and renewed gains for Dr. Copper and other Industrial Metals while Gold very well could disappoint again. Rates are but a small component of what they are looking at and with this weeks closing levels (30yy vs 1.88% ?) it would seem to me that they (and most everyone else out there who’s short duration) are breathing a huge sigh of relief…
More later…