U.S. Treasury Curve Flattening Suggests Stronger Fed Credibility

Dow Jones
Yesterday

0853 GMT - The flattening of the U.S. Treasury curve after last week's "decidedly hawkish" Federal Reserve interest-rate decision suggests that stronger Fed credibility is containing long-end yields, Julius Baer's Afonso Borges says in a note. This supports Julius Baer's preference for intermediate duration, the fixed-income analyst says. "In contrast to the typical post-GFC [global financial crisis] hike, last week's decision was not dovish," he says. Curve steepeners had become favoured expressions of concern about institutional credibility, but this reversal suggests that the Fed's willingness to tighten has reduced those concerns, Borges adds. "For portfolios, this supports our overweight duration stance, concentrated in intermediate maturities."

 

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