Rates: An uncertain normal in 2017 – TDS

Research Team at TDS believe that the global rates landscape in 2017 will be marked by more volatility than seen over the last few years.

Key Quotes

“Political risk will be a dominant theme—European elections, Brexit and policy implementation risk in the US and Japan. In addition, we expect central banks to take baby steps towards policy normalization. However, the gradual pace might trigger  fears of central banks falling “behind the curve”.”

“Finally, we expect the reach for yield to be challenged in the midst of higher rates and increased inflation risk, but we expect it to put a lid on yields at some point. Central bank accommodation is being removed slowly and Treasuries are still one of the highest yielding bond markets out there.” 

“We recommend owning 10yr ACGBs and 30yr CA against Treasuries, and we like owning 10yr gilts against bunds and TIPS over UK linkers. We also recommend owning 2yr Canada, either outright or against the US depending on the tactical backdrop.”