December 4, 2022

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Making sense of 10-year rates at 1.30% — BofA

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Is it all about the terminal rate?

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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