Be Prepared For A US Yield Curve Inversion

The report argues that the Fed will likely implement more aggressive rate hikes than the market expects, driven by sticky supercore inflation and a rebounding labor market. This expectation supports a view of 2s10s yield curve inversion.

Key Takeaways

• 1.The US labour market rebound and sticky supercore inflation suggest the Fed will need more aggressive tightening than markets currently price in, likely causing a US yield curve inversion.
• 2.TS Lombard economists forecast one Fed rate hike this year, followed by four more in 2027.

Table of Contents

• Near-term 'recalibration' priced in
• Sentiment heavily skewed towards lower terminal
• Supercore moving in the wrong direction
• Supercore acceleration is broad based
• Our economists are hawkish on Fed policy
• Curve typically flattens in hiking cycles
• Portfolio Update
• Strong decline in BEI recently
• Breakeven rates have fallen across the curve
• US consumption growth has slowed significantly
• US real income growth remains weak
• Current Trade Recommendations
• Model portfolio performance
• Model portfolio metrics since inception

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