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summary is via the folks at eFX.
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Key Takeaways:
1. US Treasuries as an Attractive Option:
BofA regards US Treasuries (USTs) as a growingly enticing alternative to risk assets. The bank believes U.S. interest rates will continue to rise until we see a slowdown in the real economy, negative reactions from risk assets, or until enough interest rate hikes are priced out, which would in turn limit further significant sell-offs.
2. Reasons for Rising US Rates:
Several factors have driven up US rates:
- Persistent robust US economic data.
- A challenging supply and demand scenario.
- Overextended UST market positioning.
These dynamics have adjusted market expectations from 150bp worth of interest rate cuts in July to just 75bp of cuts for 2024.
The September FOMC meeting played a significant role in triggering the recent sell-off in treasuries.
3. Powell’s Stance:
BofA infers that Federal Reserve Chairman Jerome Powell might not be entirely convinced that the current rates are restrictive enough. This suggests that US interest rates might need to climb further until they start having a noticeable dampening effect