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Fixed Income Strategy Weekly

Yellen quits painting

09/19/2017

- Yields rebound: Bund about 0.45%
- Fed to kickstart balance sheet reduction this week
- Strong spread narrowing in Portugal following S&P rating upgrade

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Draghi keeps markets waiting

09/12/2017

- ECB cuts 2019 inflation forecast
- QE likely to be amended next month
- Bund yields oscillating about 0.35%, T-note near 2.10%
- Sovereign debt spreads nearly unmoved after ECB meeting

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The ECB’s communication challenge

09/06/2017

- Absence of volatility across markets despite multiple risks
- Strong growth in the US (3%qoqa)
- ECB : tapering announcement in October
- Neutral duration stance remains recommended
- Italian 10-year spread below 170bp threshold

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US government shutdown risk redux

08/29/2017

- Draghi, Yellen avoid making near-term policy guidance
- Shutdown risk prevails across markets
- High uncertainty regarding tax reform

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Yields down ahead of Jackson Hole event

08/22/2017

- Bond yields down about 10bps month-to-date

- Yellen, Draghi awaited in Jackson Hole

- Neutral duration positioning, hold exposure in sovereign space

- Slight underperformance of euro credit vs. Bunds

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Draghi waits for Autumn

07/25/2017

- Ambiguous Draghi waits for Autumn
- FOMC will hint at start of normalization in statement this week
- Neutral stance on rates in euro and US, short Gilt bias
- Sharp tightening in Italian and Spanish spreads

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Easing yields benefit risk asset markets

07/18/2017

- Yellen’s address before Congress unsurprising
- Note yields easing towards 2.30%
- ECB to postpone policy adjustment to September

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The Central bankers’ bond sell-off

07/11/2017

- Global bond market rout extends: Bunds about 0.55%
- Steady growth in the US
- Fed’s Yellen will address congress for semi-annual report
- Neutral duration stance, flattening bias in 10s30s

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Central Banks talk yields higher

07/04/2017

- ECB: QE tapering likely in early 2018
- Increased tolerance for oil-led inflation slowdown
- BoE: cyclical capital buffer increased, possible hike this year
- Slight long Bund exposure, neutral stance on USTs

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Flattening pressure persists

06/27/2017

- Euro area: strong growth but slower inflation in June
- Long Bund positioning, expect tensions on swap spreads around half-year close
- Rally in credit, rich valuations in high yield

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Fed will begin balance sheet reduction

06/20/2017

- Fed raised interest rates to 1.25%
- Balance sheet reduction to start in October
- Neutral on rates, flattening pressure continues

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Fedspeak more important than rate hikes

06/13/2017

- Draghi lowers inflation forecasts to 1.3% next year
- Fed likely to hike rates this week
- Neutral on rates before Fed meeting
- Tighter sovereign spreads, stability in credit spreads

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ECB forward guidance to be amended

06/07/2017

- US: employment growth slows on shortfall of skilled workforce
- US jobless rate down to 4.3%
- Draghi to amend rate guidance

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US growth revised up

05/30/2017

- US growth revised to 1.2%qoq in 1Q17
- Investment driving US growth
- Risk of early elections rise again in Italy

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Trump, Temer towards impeachment?

05/23/2017

- Rally in T-notes, risk of impeachment of Trump
- Tensions in US housing markets
- Neutral stance in US duration, short Bunds
- Italy, Portugal spreads narrow

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Credit outperformance continues

05/16/2017

-  US inflation moderates to 2.2%, T-note yields down to 2.33%
- BoE opts for status quo despite above-target inflation until 2020
- Keep a long bias on T-notes, sell Bunds
- Euro credit spreads narrowing further

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Fed likely to raise rates in June

05/10/2017

- Higher yields on 10-year Treasuries (2.40%) and Bunds (0.44%)
- The decline in unemployment rate justifies raising rates in June
- Euro sovereign spread tightening

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Stable yields in Treasury markets before FOMC

05/03/2017

- Modest growth in the US in 1Q17 (0.7%qoqa)
- Zone euro: inflation en hausse en avril (1.9%A)
- Euro area inflation on the rise in April (1.9%yoy)

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Relief rally in Sovereign spreads

04/25/2017

- Risk asset rally after round 1 in French elections
- Shutdown risk in the US
- US GDP growth likely to soften in 1Q17
- Sell Bunds, overweight France, Spain
- Stability in credit spreads, tighter spreads in high yield and covered bond space

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Bonds rally on heightened geopolitical tensions

04/19/2017

- Unpredictable Trump policy, a new risk for markets
- Rally in bonds and yen in response to heightened political tensions
- Neutral stance recommended in Bunds, T-notes
- Investors left waiting for French elections outcome

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A little pause

04/11/2017

- Fedspeak to be market mover yet again
- US labor market data somewhat inconsistent
- Hold long US rate bias
- Higher volatility in OAT markets ahead of elections

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US yields lower on failed Obamacare repeal

03/28/2017

- Healthcare reform fails in the US, T-note yields dip below 2.40%
- Success at last TLTRO in euro area
- Raise exposure to T-note, neutral on Bunds

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Fed maintains gradualism

03/21/2017

- Fed projects three hikes in 2017
- Growth momentum intact in Europe, US
- German 2-year yields back above -0.80%
- Neutral on rates, hold 10s30s steepeners

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Schatz squeezed further

02/28/2017

- Schatz hit historical lows at -1%
- Fed unsure about timing, not direction of rates
- Sell T-Note, neutral on Bunds
- Lighten OAT holdings, keep out of BTPs

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Yields capped by political uncertainties

02/21/2017

- US credit quality deteriorating in spite of growth

- Fed: hike possible in March?

- Neutral on Bunds, long exposure on USTs

- High volatility in OAT spreads

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Fed faced with fiscal and political uncertainties

02/14/2017

- Yellen’s testimony to guide bond markets
-  Fed’s Tarullo resigns
- Hold neutral stance in USTs, long bias in Bunds
- Upward pressure on Italian and French spreads

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BTPs exposed to downgrade risk

02/07/2017

- T-note does not react to strong data
- Fed opts for status quo, cites low inflation expectations
- Raise US duration exposure
- Italian spreads skyrockets to 200bps

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Sovereign spreads under pressure (again)

01/31/2017

- Moderate growth in the US (1.9%qoqa in 4Q16)
- FOMC: status quo expected
- BoE: end of Gilt purchases as inflation expectations soar
- Sovereign debt: cut exposure to Italy and France

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Higher volatility in US, euro bond markets

01/24/2017

- ECB: purchases below deposit rate in PSPP only
- US GDP growth to hover about 2.5% in 4Q16
- Keep a short bias on USTs and Gilts
- France: inaugural syndication of Green OAT

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