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US TSYS: *** EXCLUSIVE: The strange thing about asking traders on 2018 US
Treasuries themes is there is no consensus. Some traders worry about
"low-flation" as Amazon bought Whole Foods, axed prices 15%. But others worry
about high inflation.
- Traders differ on what to focus on next year. But others said general taxes
and US deficit will be key next year. But one theme is interesting for 2018:
SocGen's call urged to be "ready for the end of Goldilocks"; it urged such "exit
strategies" such as going long 10Y US Tsys, and short 10-yr German Bund/vs. long
5Y euro peripheral Bonds, among other ideas.
- And one thing no one seems to cite yet for 2018/beyond is watching Fed reverse
financial crisis buying of US Tsys and Agency MBS. It now has a huge $4.2 Trln
balance sheet of US Tsys and Agency MBS, and it's letting those mature/run off.
Balance sheet reduction is starting slow. But soon it could be of importance as
Treasury will have to slice its debt issuance to cope with runoff as it picks up
speed. And at some point, the ECB will start its own taper program too.
- Goodbye, Goldilocks, indeed!