“The rise in US government yields could be in its final phase as the sharp slowdown in US inflation should lead the Fed to stop the hike cycle by March 2023″. This is what we read in a section of the “Outlook 2023: from inflation to recession, the reaction of the central banks” compiled by the analysts of Mps Capital Services.
“Historically, it is just around the last rate hike that yields, both on 2 and on 10 years, have peaked. Therefore, although in the first quarter we could still see a last leg up in yields towards the highs seen during this year, starting from spring onwards, i.e. when it will be more
the slowdown in the rental component is evident (which today is holding back a more decisive drop in core inflation), we should see a trend reversal”.
MPS Capital Services continues, again referring to US Treasury rates, in particular the inversion of the yield curve between 2 and 10 years:
“However, the 2-10 curve should remain in negative territory for most of the year, considering the expected stand-by of the Fed – continues the note – Only in the part
end of the year, the bull steepening movement (steepening curve with falling rates of return) could prevail, ie when the slowdown in inflation will be more evident as well as the deterioration of growth and the labor market. In that context the yield
10-year Treasury is expected to move back towards 3% or even below. Indications in this sense already reach us from the 10-30 curve spread, which historically anticipates the evolution of the 2-10″ by about 8 months.
“We also remind you – concluded by Mps Capital Services – that the US Treasury this year will not benefit from the
transfers by the Fed of the profits obtained from its securities portfolio, which results in a loss due to the increase in yields. That sum amounted to $107.4 billion last year.”