US Treasuries: Bear flattening as markets price more hikes – TD Securities

TD Securities reports that US Treasuries bear flattened sharply after stronger US CPI and hawkish comments from Governor Waller led markets to price in additional Fed tightening. Front-end yields moved higher, breakevens widened, and the bank warns that highly negative BE carry in early 2027 could become a headwind for the inflation-linked asset class.

Front-end repricing and BE carry headwinds

"Rates: Treasuries bear flattened sharply as the market penciled in more rate hikes."

"Markets leaned into Governor Waller's comments from earlier in the session around potentially needing a "catch up" 50bp hike, bringing pricing for hikes in December higher from 25bp to around 28bp and increasing pricing for hikes in 2027 to 45bp from 34bp."

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"This pressured the front-end sharply higher, flattening the curve and moving BEs wider."

"Markets will be waiting on further Fedspeak to confirm whether other FOMC members agree with Waller before pushing December pricing higher."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)

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