At Any Rate US Rates – Everybody knows this is nowhere
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Feb 21, 2025 Jay Barry, the Head of Global Rates Strategy at J.P. Morgan, shares insightful perspectives on the Treasury and TIPS market. He examines recent modifications in the U.S. Treasury yield curve and the Federal Reserve's dovish stance. Jay discusses potential changes in monetary policy and how these influence inflation expectations and the treasury market. The conversation also dives into tariff risks, CPI dynamics, and the implications of economic indicators on inflation and growth amidst political polarization.
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Yield Curve Dynamics
- The yield curve has flattened, with 10-year yields at the lower end of their two-month range.
- Front-end yields are less attractive now than a few weeks ago when they were higher.
Balance Sheet and Term Premium
- The Fed's balance sheet policy and QT's end date are uncertain, affecting term premium.
- Treasury Secretary Yellen's stance on auction sizes and debt maturity adds complexity.
Inflation Expectations and Tariffs
- Five-year breakevens are at their widest in two years, driven by a hot CPI report and tariff uncertainty.
- However, considering seasonality and carry, they're within their four-month range.