Sellside observations for week ahead...
The "hair" forecast ("10y yields, actual and forecasts, %") PROVES they've NO idea...
WHY am Idoing this, you ask? Because I like it and it’s far more entertaining to read and share this than it has been to watch the NYG.
In the case you’ve not yet heard ‘nuff about front-end steepeners (from MS who’s ALSO gotten stopped OUT of 7yy shorts) and about more generically popular (2s5s and 5s30s) flatteners — BMO adds credibility to it all.
What will 2022 bring and what will this weeks FOMC DOTS show? Have a point and click up and through THIS DOC to browse some of the highlights and the lowlights of all the dart throwing going on out there on global Wall St.
You’ll be greeted by a prime example of this sort of dart throwing / thinking and infographics from the likes of Barclays relating TO the FED and where / how 10yy goes
… markets are likely to continue to differentiate between the “most likely” outcome and the weighted mean outcome for the medium term policy rate. For the mean to move higher, we believe the inflation outlook needs to evolve such that the likelihood if it falling to/below the 2% target is reduced in favor of it being persistently above 2%. In our view, that would require a leg higher in core service inflation. Keep in mind rents/OER have a much lower weight in PCE so an increase in housing inflation alone can easily by offset by disinflation in other sectors. While not our expectation, we would be watching for a broad-based increase in service inflation.
Hence, while we expect long-term yields to rise modestly, we believe expectations of a large selloff led by the back end are misplaced. We continue to forecast 10y yields to rise only modestly to 1.75% by YE-22 as opposed to the consensus view of 2% and 2.4% by YE-22 and YE23 respectively. If history is any guide, the risks are skewed against a large selloff materializing (Figure 16).
In other words, they’ve proven via the ‘hair’ forecasts nobody knows … Not EVEN the shadow.
For this AND more … point / click and enjoy what’s left of the weekend.