Inflation woes and a dovish Fed drive long rates up

In Kürze

Despite the latest strong economic rebound of the US economy and increasing worries about a surge in inflation, the Fed is tirelessly underlining that the conditions for withdrawing monetary support are still far from being met.

Highlights:

  • Markets price the first US rate hike as early as in H1 2023, mainly reflecting a higher risk premium on inflation fears. These
    worries are unlikely to ease in the short term given the volatility in inflation and employment.
  • In contrast, our estimate of the new Fed reaction function predicts a rate lift-off no earlier than in Q4 2023. Markets seem
    to have mixed views on the Fed’s stated higher tolerance towards inflation, requiring the Fed to improve its communication.
  • Expectations of an early liftoff strongly affect the short end of the curve. The currently priced strong increase in short-dated
    yields appears overdone. While not immune to the economic recovery and slowly approaching key rate hikes, short-dated
    US Treasuries are seen to hold up relatively well.
  • In contrast, long-dated US Treasuries remain vulnerable to a rise in real yields and a delayed lift-off. The USD yield curve
    is then set to steepen further.

Download the full publication below

Focal Point ǀ Inflation woes and a dovish Fed drive long rates up
PDF
Picture

© Generali Investments, alle Rechte vorbehalten. Diese Website wird von der Generali Investments Holding S.p.A. als Holdinggesellschaft der wichtigsten Vermögensverwaltungsgesellschaften der Generali Gruppe zur Verfügung gestellt, die direkt oder indirekt die Mehrheitsbeteiligung an den unten aufgeführten Gesellschaften hält (im Folgenden gemeinsam "Generali Investments"). Diese Website kann Informationen über die Tätigkeit der folgenden Gesellschaften enthalten: Generali Asset Management S.p.A. Società di gestione del risparmio, Infranity, Sycomore Asset Management, Aperture Investors LLC (einschließlich Aperture Investors UK Ltd), Plenisfer Investments S.p.A. Società di gestione del risparmio, Lumyna Investments Limited, Sosteneo S. p.A. Società di gestione del risparmio, Generali Real Estate S.p.A. Società di gestione del risparmio, Conning* und unter deren Tochtergesellschaften Global Evolution Asset Management A/S - einschließlich Global Evolution USA, LLC und Global Evolution Fund Management Singapore Pte. Ltd - Octagon Credit Investors, LLC, Pearlmark Real Estate, LLC sowie Generali Investments CEE. *Einschließlich Conning, Inc, Conning Asset Management Limited, Conning Asia Pacific Limited, Conning Investment Products, Inc, Goodwin Capital Advisers, Inc. (zusammen "Conning").