Fed dots allow UST market to price in ‘patient’ even more aggressively
Standard Chartered notes as follows... Given the Fed's updated economic projections, and particularly the much more dovish 'dot-plot', we lower our US Treasury (UST) yield forecasts to show a more gradual upward trajecto…
Given the Fed's updated economic projections, and particularly the much more dovish 'dot-plot', we lower our US Treasury (UST) yield forecasts to show a more gradual upward trajectory.
We had thought that the removal of "patient", and thus the more uncertain Fed outlook, would eventually lead to an increase in the term premium.
However, we think the significant shift down in the median policy-rate projection will dampen such a development.
Still, the knee-jerk UST rally in response to the projections has left the short end pricing in an overly dovish Fed policy-rate path, relative to our view.
Consequently, we still think risks are balanced towards higher rather than lower UST yields and a flatter curve over the coming months.
We now expect the 10Y yield to finish 2015 at 2.30% instead of 2.60%.
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