Couple of things in markets this morning. We had quite the bond rally over the past several days, but what really happened is that UST yields fell to levels where they are meeting strong technical resistance, limiting the scope for further declines. But in the greater scheme of things, increases in nominal yields will be limited. Ballooning debt levels mean real rates will have to stay deeply negative. And unless you expect inflation to rear its ugly head in a substantial way, that means nominal yields will stay low and the yield curve will remain flat compared to what we are used to see after a recession. The risk in this regard is a hawkish surprise by the Fed. However, the Fed has cornered itself with this wave of dovishness. Don’t see how they could pull of a U-turn anytime soon.


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