DRUT Bastien , Fixed Income and FX Strategy
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Without exception, 10-year rates fell in all G10 countries during the first three quarters of 2016, what can be explained by the strengthening of accommodative monetary policies (lowering key interest rates, expanding balance sheets) in almost all countries. Since October, longterm rates are rising and this rise has accelerated since the US elections.
Several factors will favour an increase in long-term interest rates: rising total inflation, increase of the fed funds rate in December, likely pro-growth measurer from the US government. However, we doubt that this will become a trend that will persist throughout the whole year 2017 and the opportunity to be long again will resurface rather soon: the expectations in terms of US fiscal easing are very high and the monetary policies at the global level will remain very accommodative (massive asset purchases for the ECB and the BoJ), which will weigh again on longterm yields.
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