Markets in 2 Minutes: US 2-Year Yields Have Probably Peaked
You are coming to this this idea that maybe actually the two year, the US two year has peaks. If it has, what are the implications? Yes, go. Absolutely. I think I would have put myself very much in Kashkari camp in terms of that for this year. I’m a known hawk and I’m not a voting member of the Fed, but what I always said until now made sense. But we always dismissed his views in the same way that my views don’t really influence policy either, so they shouldn’t have too much reaction in the short term. However, while I would have argued till now that we shouldn’t rather hike, I actually think there’s a chance the tier yields might have peaked. I think that there or at least I’m growing in conviction that view. I said before they might have peaked but I didn’t have much conviction either way. I thought there might be another scare to the top side and now think to your yields probably have peaked. I think there’s increased softness coming through. And I think the study coming through from the San Francisco Fed that excess savings have finally been worn down. This has been the big topic of the last few years of what we really cared about. Last year, we forgot about it when their estimation of when they’d run out was wrong. The San Francisco Fed got it right. They said it run out middle of this year. Just last week, they said they finally turned negative. So I think we’re starting to do some consumer weakness that might be an issue for later on this year, not on an immediate basis. And therefore, 2 yields has probably peaked. What does that mean for other assets? I think value stocks can continue outperforming. Growth stocks, a nascent theme we’ve seen a little bit of recently. I think China, Hong Kong stocks can continue to do well. They’re decorated from the US as much as possible over the last couple of years in a globalised world. And I think it does enhance the view the dollar as well has probably peaked, but the topping process will probably be volatile. OK, So what happens to the shape of the curve in this environment? It steepens from here. I think that’s the it’s going to steep it in a volatile manner. So if you think that the Fed’s double S reaction function combined with the fact that we might have just passed peak optimism on the economy. I’m not talking about some do mongrel scenario, just that we’re going to start getting a little bit more negative on growth and that Davis reaction function that will cap the front end of the curve. So tier yields will probably continue to come lower whereas 10 year yields will whip around with sticky inflation versus negative growth. But ultimately it’s probably a steepening bias over the next couple of months.