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3 Mar 2015
Downward correction in US rates - Rabobank
FXStreet (Barcelona) - Philip Marey, Senior US Strategist at Rabobank, expects the Fed to delay its hike to Q4, 2015, which would lead to a downward correction in the US rates in the coming months.
Key Quotes
“Our USD rate forecasts have been below consensus for some time, and we have been forecasting an outright decline in rates since the start of October. In reality, rates have dropped more than we had forecasted.”
“While the FOMC is still aiming for a summer rate hike, we expect them to delay the hike until the final quarter. Consequently, we expect a downward correction in the USD rate curve in the coming months."
“Meanwhile, the ECB’s expanded asset purchase program is likely to add to downward pressure on government bond yields.”
“These factors add to the undercurrents in the market for US treasuries that we highlighted a year ago. The falling budget deficit is leading to decreased net issuance, while there is increased demand of pension funds and banks for US treasuries because of the rising share of retirees and regulation. These undercurrents are exerting downward pressure on US treasury yields, independent of cyclical factors and monetary policies."
“On balance, we expect downward pressures to continue to prevail in the next six months, before rates rebound as we approach the Fed’s first rate hike in the final quarter of the year."
Key Quotes
“Our USD rate forecasts have been below consensus for some time, and we have been forecasting an outright decline in rates since the start of October. In reality, rates have dropped more than we had forecasted.”
“While the FOMC is still aiming for a summer rate hike, we expect them to delay the hike until the final quarter. Consequently, we expect a downward correction in the USD rate curve in the coming months."
“Meanwhile, the ECB’s expanded asset purchase program is likely to add to downward pressure on government bond yields.”
“These factors add to the undercurrents in the market for US treasuries that we highlighted a year ago. The falling budget deficit is leading to decreased net issuance, while there is increased demand of pension funds and banks for US treasuries because of the rising share of retirees and regulation. These undercurrents are exerting downward pressure on US treasury yields, independent of cyclical factors and monetary policies."
“On balance, we expect downward pressures to continue to prevail in the next six months, before rates rebound as we approach the Fed’s first rate hike in the final quarter of the year."