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 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%.