Follow US Treasury yields, the yield curve and policy expectations.
JPMorgan expects the Federal Reserve to raise rates in December and maintains its view that the 10-year and 30-year US Treasury yield curve will steepen. Treasury bill supply will increase next year, while credit remains exposed to concentrated issuance and the elections in the near term.
Morgan Stanley believes Treasury and AI-related corporate bond yields are jointly pushing up funding costs and broadening the correction in risk assets; the bank is holding off on adding interest rate risk ahead of the midterm elections and key economic data releases.
Based on volatility pricing in US dollar interest-rate options, Morgan Stanley selects trading structures for rising and falling rates and for yield-curve steepening and flattening; costs, maximum returns and the risks of selling options differ.
Goldman Sachs expects one more rate hike in this cycle, fewer than the roughly three priced in by markets. Historically, stocks have often stumbled briefly after the first hike, but improving inflation, growth concerns and prolonged tightening produce different asset performances.
A Bank of America model shows that shorts in intermediate- and long-term US Treasuries have been substantially covered, while S&P 500 futures are only about 0.5% from the first CTA sell trigger. Over the coming week, systematic strategies could net sell 48 billion US dollars of global equities even if markets are flat.
Pressure on French government bonds and weakness in technology stocks drove Treasuries higher, but JPMorgan believes near-term valuations have become expensive and prefers a trade betting on a wider spread between 10-year and 30-year yields. Auction data show that foreign and long-end demand remains strong, although buyers have become more price-sensitive across most maturities.
Pressure on European sovereign bonds and concerns over AI valuations are driving safe-haven demand for US Treasuries, but JPMorgan believes the 10-year yield is already about 15 basis points below its model-implied fair value. Credit market pressure is concentrated in major cloud providers and lower-rated bonds, while ABS and agency CMBS are relatively resilient.
