When Will The Fed Begin Tapering: Here's What 10 Wall Street Strategists Think

Morgan Stanley (Guneet Dhingra, April 23 report)

  • “The complete lack of reaction to the recent upside surprises in economic data shows the high degree of optimism embedded in Treasury yields”
  • Risks of prolonged virus challenges “will be enough to keep the Fed a lot more patient than the optimistic path priced by the Treasury market”
  • Rate-hike expectations are likely to move “deeper into 2023,” and 5- and 10-year yields “could be around 65bp and 140bp if the market prices the first hike in June 2023”
  • Continues to favor 5s30s steepeners and EDM2/EDM3 flatteners

NatWest (John Briggs, April 24 report)

  • Recommends short positions in Treasuries, especially intermediates, based on rising expectations that Fed will begin to discuss tapering asset purchases in September, following similar moves by Canada and possibly U.K. in the meantime
  • Tapering “will lead to the market pricing in more hikes down the road,” beginning in 2023, “and then as in 2013, just roll that rate hike pricing over time until we actually get there”

Soc Gen (Subadra Rajappa, others, April 22 report)

  • “With the U.S. economy at an ‘inflection point’ and bond yields at the lower end of the recent range, we see room for yields to rise on strong data”
  • Fed “is set to take baby steps towards preparing the markets for a taper announcement, while the ECB retains a more cautious stance,” which should lead to U.S.-German 10-year spread widening

TD Securities (Priya Misra, Gennadiy Goldberg, Penglu Zhao, April 23 report)

  • It’s too soon to expect any sign on tapering asset purchases from the FOMC meeting
  • Recent price action “is just a temporary breather in the longer-term trend towards higher rates” driven by economic improvement, increased supply of duration and higher inflation risk premium
  • Expects 10- year yield to reach 2% by year end, 5s30s curve to steepen
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