• Markets moving on central banks tightening policy sooner than later to stamp out inflation remains all the rage these days. With long end bond yields still mostly range-bound, the more explosive moves we see in 2-year government bond yields these days. At the same time, the moves in OIS forwards for 12 months ahead (or there about) gives plenty of food for thought for us central bank watchers.
  • The 2-year US Treasury yield spiked later on Friday, and at pixel time we’re now trading at a post-outbreak high of 0.42. The 10y can’t keep up and was at 1.60, which makes for a flatter yield curve. In fact, the 5y/30y spread (trading at 90bps) has flattened aggressively and is now at levels that we reached late in the last business cycle, when Fed interest rate hikes were well under way. Expect the flattening trend to hold. Past precedent has shown that when Fed rate hikes come into view, the cyclical high for spreads like the 2y10y and 5y30y have been reached. By definition, that will put the brakes on further increase in long end yields.

 

 

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