Back
9 Apr 2015
Rising commodity prices could spur Fed tightening – RBS
FXStreet (Barcelona) - William O'Donnell, Head of US Treasury Strategy, argues that with commodities looking heavily oversold, a rise in commodity prices might spur Fed tightening.
Key Quotes
“…the commodity charts are looking deeply oversold (Oil included) and suggesting that it's possible that we could see a rebuild if inflation risk premium back into the curve via a back-end steepening.”
“The trick to this is that rising commodity prices could spur a Fed tightening or lead the Fed to up the pace of tightening-- potentially pressuring 5's more than bonds, at least at the outset.”
“…the inflation steepening scenario may best fit 10s30s rather than 5s30s, for what that's worth.”
“The two scenarios that we all agreed should force back end curves steeper are ones that Fed probably doesn't want to hear about: 1) where the US business cycle ends before rates are lifted off the zero bound or, alternatively, 2) if the Fed finds itself trapped in the global currency war, unable to lift rates without hurting earnings/stocks or inflation expectations by going it alone and unilaterally raising rates when everyone else is cutting them.”
“If Q2 GDP doesn't rebound smartly from the weather and port-induced Q1 weakness, I reckon these latter two scenarios might gain more traction—and the steepeners with 'em. As always, we'll have to see how this plays out.”
Key Quotes
“…the commodity charts are looking deeply oversold (Oil included) and suggesting that it's possible that we could see a rebuild if inflation risk premium back into the curve via a back-end steepening.”
“The trick to this is that rising commodity prices could spur a Fed tightening or lead the Fed to up the pace of tightening-- potentially pressuring 5's more than bonds, at least at the outset.”
“…the inflation steepening scenario may best fit 10s30s rather than 5s30s, for what that's worth.”
“The two scenarios that we all agreed should force back end curves steeper are ones that Fed probably doesn't want to hear about: 1) where the US business cycle ends before rates are lifted off the zero bound or, alternatively, 2) if the Fed finds itself trapped in the global currency war, unable to lift rates without hurting earnings/stocks or inflation expectations by going it alone and unilaterally raising rates when everyone else is cutting them.”
“If Q2 GDP doesn't rebound smartly from the weather and port-induced Q1 weakness, I reckon these latter two scenarios might gain more traction—and the steepeners with 'em. As always, we'll have to see how this plays out.”