Customize Consent Preferences

We use cookies to help you navigate efficiently and perform certain functions. You will find detailed information about all cookies under each consent category below.

The cookies that are categorized as "Necessary" are stored on your browser as they are essential for enabling the basic functionalities of the site. ... 

Always Active

Necessary cookies are required to enable the basic features of this site, such as providing secure log-in or adjusting your consent preferences. These cookies do not store any personally identifiable data.

No cookies to display.

Functional cookies help perform certain functionalities like sharing the content of the website on social media platforms, collecting feedback, and other third-party features.

No cookies to display.

Analytical cookies are used to understand how visitors interact with the website. These cookies help provide information on metrics such as the number of visitors, bounce rate, traffic source, etc.

No cookies to display.

Performance cookies are used to understand and analyze the key performance indexes of the website which helps in delivering a better user experience for the visitors.

No cookies to display.

Advertisement cookies are used to provide visitors with customized advertisements based on the pages you visited previously and to analyze the effectiveness of the ad campaigns.

No cookies to display.

Loading...
Most Recent Stories

WHERE ARE RATES HEADED? 3 SCENARIOS

One of the hotter debates going on right now surrounds interest rates and whether the great bull market in bonds will continue.  My base case has become bearish on Treasuries after having been bullish last year before the big surge in bonds.  In a recent research piece Nomura offered three scenarios for interest rates.  I agree with their scenario B in which they view increasing odds of QE3 in Q2 and a rise in yields as the standard portfolio rebalancing plays out as a result of more easing:

“in Figure 1 we show scenarios (with a base case) of the next potential moves where we do not envision the range lasting for much longer.

  • Scenario A (20% probability): US data continues to be strong, with a weak 10yr auction as investors try to ascertain a higher coupon at the refunding, and then Japan begins to sell into year-end (March), along with a potential agreement around Greece quickly reverses this week’s Fed-induced rally, pushing rates higher into summer.
  • Scenario B (60% probability; our base case): Either US data begins to wane because of seasonality, or European fears resurface, which leads the Fed or ECB to QE in Q2. However, even if data continues to be strong, the initial rise in rates would be met with buying from “value investors”, leading to a temporary range before more easing comes, favoring risk assets.
  • Scenario C (20% probability): European fears flare-up and data fades even faster, leading to risk assets (stocks etc) rolling over, helping USTs. The question here is does this happen now or after we hit 2.16%? Either way, whether there is a rebound or new long range will be determined through how bold central bank actions are. Rates would rally first before anticipating a positive catalyst from the Fed‟s and/or ECB‟s next easing move, therefore breaking us to a new lower range.”

Source: Nomura

Comments are closed.