VIEW: Wednesday saw Bank of America.........>

US TSYS: VIEW: Wednesday saw Bank of America Research note that "clients have

recently asked how far can US rates rise before they become problematic for

risky assets and the economy more broadly. The answer depends on the shape of

the recovery. Sub-1% 10y yields are likely to continue to support risky assets,

but these have limited scope to tolerate higher yields under "L" shape

scenarios. At the other side of the spectrum, a "V" recovery could see 10y back

to 175bp, but with limited impact on risky assets. Under a "U" recovery,

however, we believe 10y real rates cannot rise more than 25-50bp, with nominal

rates around 125-150bp, without a meaningful impact on risky assets. We arrive

at our views by (1) considering feedback loops between rates and risk assets and

(2) examining the real rate curve. Our base case remains 10y at 1% by year end.

The Fed is unlikely to resist a rate rise if is driven by "healthy"

fundamentals, but would likely fight an "unhealthy" rate increase (into -5bp to

20bp in 10y real yields) by increasing its UST asset purchases. This is

especially true if the rate rise was driven by supply/demand issues, UST

cheapening vs OIS, or deteriorating liquidity."