CIBC rates strategist Richard......>

US TSYS/RESEARCH: CIBC rates strategist Richard Gilhooly said the US Tsy 2-year

note yield will "break over 2% and head toward 2.50% early in 2018." He adds

"front-end yields have long surpassed the March (2017) highs, with 3y notes

above 2% and 2y yields approaching that level, following a near 60bp sell-off

since September that has yet to ignite overseas official buy interest."

- "But the dramatic widening in 2y rate differentials of US-Germany, seen to a

lesser degree at 10yrs, appears to have been ignored by a range-bound USD as the

long-end (we use 10y10y) forward differential has assumed more significance," he

said. "Should the ECB shift to signal a rise in the deposit rate from -40bp,

this could accelerate curve flattening in Europe and there has been some

discussion of this in recent weeks. This could see a flood of money exiting

front-end Europe and taking advantage of higher short rates in the US, but we

think the 2Y has to break over 2% and possibly to rise as far as 2.50% before

such flows become dominant."