G10 Rates Outlook: The long and unwinding road - TDS

In 2018 the global rates markets will continue to grapple with the gradual removal of central bank accommodation, suggests the research team at TDS.

Key Quotes

“Global government bond supply net of central bank buying should increase, which should put upward pressure on term premium. However, global FX reserve accumulation due to continued USD weakness should help mute this effect.” 

“We believe that global bond correlations on the long-end of the curve will remain high due to the ongoing reach for yield. Correlations on the front-end should also rise as we see gradual hikes from other central banks, depending on the extent of pick-up in inflation. We recommend selling front-end US rates vs Canada and the UK.”

“Further out the curve, we think that US rates can outperform Europe and Canada and NZ should underperform the AU.”