17 Dec 2014
Hawkish Fed tone might be long term negative for US treasuries – KBC
FXStreet (Barcelona) - The KBC Bank Research Team feels that a hawkish Fed guidance in the FOMC meeting will be long term negative for US treasuries, anticipating underperformance of the front end )2.5yr) of the curve.
Key Quotes
“We stick to our opinion that the Fed will change its guidance (hawkish). In such a case, that’s a long term negative for US treasuries with underperformance of the front end (2-5yr) of the curve expected. However, whatever they decide, short-term safe haven flows might still dominate in case the crash in EM FX/oil/equities continues.”
“For German rates, we expect only small spill-over effects from eventual higher US rates. At least until the day that the ECB effectively walks the QE talk, we think there is very little upward potential.”
“For intra-EMU bond markets, contagion risks (Greek political gamble, higher volatility) increased which could lead to some spread widening (PIIGS).”
Key Quotes
“We stick to our opinion that the Fed will change its guidance (hawkish). In such a case, that’s a long term negative for US treasuries with underperformance of the front end (2-5yr) of the curve expected. However, whatever they decide, short-term safe haven flows might still dominate in case the crash in EM FX/oil/equities continues.”
“For German rates, we expect only small spill-over effects from eventual higher US rates. At least until the day that the ECB effectively walks the QE talk, we think there is very little upward potential.”
“For intra-EMU bond markets, contagion risks (Greek political gamble, higher volatility) increased which could lead to some spread widening (PIIGS).”