What's Really Lifting US Long-Term Yields?
There are several compelling reasons for long-term rates to move higher as they have. However, the market has been very aggressive in doing so. In our view, these recent moves are a bit overdone and will have to retrace somewhat in the near-term. There are several reasons to support this view:
- A stronger USD will likely dampen inflationary impulses and actual inflation may not materialize as strongly as expected​
- Both the size and composition of US fiscal stimulus remain very unclear. How much of it will be a one-time fiscal expenditure and how much will be more permanent tax cut or outlay is unknown.  This is critical for determining the degree of additional borrowing in the long term.
- The market appears to be underestimating the extent of the Fed’s dovish tilt in 2017
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