BMO analysts said on "big themes...>

US TSYS/RESEARCH: BMO analysts said on "big themes for 2018" for US Treasuries

that "curve flatteners feature prominently with 2s/10s and 5s/30s our go-tos in

the current mkt conditions. The flattener is an easy call when the inflation

prints are relatively benign, but inflation has a known degree of seasonality

that leaves us anticipating more constructive prints in the first quarter. That

will present an important obstacle to the trade as realized inflation has been

cited as the missing ingredient for the long-awaited return of term premium."

- They said "we'll be the first to concede that more inflation will lead to

higher rates, but just not necessarily in the 10- and 30-year sectors. More

pricing pressure will reinforce expectations for the Fed to deliver 3-4 rate

hikes in 2018 - an outcome that is nowhere near currently priced in." 

- "The price action seen in recent weeks is arguably an early glimpse at the

market's response-function to the return of modest inflation and if we're right

the default will be to price in more from the Fed with stronger

core-CPI/core-PCE," they added.