BofA: Patience On Duration

BofA write “data has dominated. We recommend patience on adding duration until 10y UST 4.50%+ & total Fed cuts over the cycle closer to 150bp or less.”

• “Our more cautious take on duration is driven by: strong data, positioning, technicals and seasonality.”
• “Data is clear: activity is above trend, labor is tight, inflation sticky.”
• “Positioning suggests the rate pain trade is higher & flatter.”
• “Technicals suggest 10y could test 4.5-4.6%. Contained banking system concerns can allow UST rates to push higher.”
• “In determining yield levels that USTs can test, we think the cutting trough is more important than Fed cut timing. This approach also informs the trades we like: duration = patience to add until closer to 4.5%, inflation = own 2Y inflation, vol = 3m1y payer spreads and 6m10y payer ladders. We also like 10y Bunds vs USTs on widening economic differences. A risk to the trade is better European growth.”