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Mar 23 - 10:55 AM

USD: 2s10s Curve Points To A Late Cycle Dynamic And Reflects Recession Risks - BofA

By eFXdata  —  Mar 23 - 09:30 AM

Bank of America Global Research discusses the US economic outlook and flags recession risks.

"The recent 2s10s curve dynamics reflect recession risks, and not just through the curve's extreme flatness at the inception of the Fed tightening cycle...The inversion priced into curve forwards (c.-25bp peak in mid-'23) suggests a near-term transition into a late-cycle dynamic," BofA notes. 

"We continue to favor positions that reflect downside risks to the outlook. Inversions are a significant mile-marker for late-cycle transitions, with implications for expected returns and covariances across asset classes. Scope for a more hawkish Fed near term likely exacerbates medium-term risks to the outlook. These suggest a more cautious risk appetite and asset-allocation profiles, support UST demand, and imply relatively anchored backend yields," BofA adds. 

Source:
BofA Global Research

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