Earnings Call, Conference Presentation
Bond market selloff
- U.S. investors anticipate a shift from dovish to neutral and potentially hawkish Federal Reserve policy to address elevated inflation, with current positioning showing CTAs very short in Treasuries and active managers underweight Treasuries while overweighting spreads and GNMA mortgages.
- U.S. Treasury rates may stabilize if U.S.-Iran negotiation progress occurs, allowing commodities to move lower, while continued fixed income inflows suggest a fundamental reassessment rather than a flight from dollar assets.
- Japan's 5-to-30-year JGB yield curve is expected to remain steep at approximately 200 basis points following a rise from 180 basis points in early April, supported by the BOJ Governor's green light for rate hikes and a lack of government plans to increase JGB auction sizes.
- Foreign real money accounts in Japan may continue unwinding flattener positions due to energy import reliance and fading confidence in the yen, though the Japanese government intends to reallocate funding bonds to deficit finance bonds rather than increasing auction volumes.
- Bank of England rate hikes are now anticipated in July and September rather than June and July, carrying a risk that only one hike will occur this year alongside persistent political uncertainty through the June 18th by-election.
- A dovish repricing scenario involving a single Bank of England hike could result in approximately five basis points of additional steepening in the 10-year and 30-year gilt curves, whereas a surprise June hike might generate bear flattening pressures.
- The Euro Area expects an increase in net supply to private investors in 2026 with an issuance pace behind last year's volume, though German infrastructure and defense spending may not expand rapidly, posing downside risks to supply expectations.
- German bond yield upward pressure from supply is not expected to disappear but may slow slightly over the summer, with 3-to-10-year and 3-to-20-year 10-year bund yield marks likely representing the upper end of 2026 expectations.
- Meaningful higher repricing of bond yields in the Euro Area requires pricing closer to 200 basis points of ECB hikes without deteriorating growth sentiment, a shift analysts consider unlikely given softening underlying inflation and growth dynamics.
- Quarterly rate cuts are projected to begin in the second quarter of 2027, reaching a terminal rate of 3.5% by the end of 2027, as eventual inflation underperformance and weak growth help European bonds reprice at lower yields.