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Apr 20 - 12:55 PM

USD: Going Long US 10y Notes Expecting Inflation To Peak This Quarter; Here Is The Trade - BofA

By eFXdata  —  Apr 20 - 10:45 AM

Bank of America Global Research believes that today's 10y rate offers an attractive level to buy.

"We view the current level of 10y rates as a compelling location to go long for a 3-month horizon (entry 2.83%, target 2.25%, stop 3.1%, risk: inflation expectations become unhinged). The 10-year rates reached a pandemic-high of 2.92% on Tuesday. While this is close to the 3.28% peak of November 2018, the main difference is that 10y real rates today are negative (-7bp) vs +1.16% at the 2018 peak. The high level of 10y rates today results from a high level of 10y inflation expectations, now around 2.95%, vs 2.00% in November 2018. While CPI inflation is 8.5%, we believe the market may be overemphasizing inflation risks," BofA notes. 

"Although inflation is familiar to people in emerging markets, it is new to many in the US. Another piece of evidence for the almost-manic focus on inflation is the extent of mutual-fund inflows into inflation-protected Treasury funds since 2019. Our forecasts point to inflation peaking this quarter and falling steadily into 2023. We believe this will reduce the panic level around inflation and allow rates to decline," BofA adds.

BofA Global Research


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