Free Trial

Tactical Plays For Potential Accelerated Taper

US TSYS
TD Securities strategists said they are going short 10Y real rates and adding to long 2Y TIPS BEs in the aftermath of Fed Chair Powell's willingness to discuss faster tapering at the Dec FOMC and "time to retire 'transitory'" comments yesterday.
  • TD anticipates the Fed "will indeed accelerate tapering to give themselves the flexibility to hike as soon as Mar 2022."
  • An earlier end to QE and potential faster hikes should move long end real rates higher. There is also a supply effect of tapering as markets will need to absorb more TIPS supply (net supply at $52bn in 2022 vs. -$20bn in 2021), and we go short 10y real rates to position for faster tapering.
  • We don't believe the market's low terminal rate pricing (which assumes a policy mistake) and expect real rate term premium to rise. The trade carries negatively at -7.2bp to Jan 1, 2022.

To read the full story

Close

Why MNI

MNI is the leading provider

of intelligence and analysis on the Global Fixed Income, Foreign Exchange and Energy markets. We use an innovative combination of real-time analysis, deep fundamental research and journalism to provide unique and actionable insights for traders and investors. Our "All signal, no noise" approach drives an intelligence service that is succinct and timely, which is highly regarded by our time constrained client base.

Our Head Office is in London with offices in Chicago, Washington and Beijing, as well as an on the ground presence in other major financial centres across the world.