There is still no let-up in selling of long-end US Treasuries as 10Y yields closed at a cycle high of 4.54%. Comparatively, 2Y yields were relatively anchored around 5.12%. There was no obvious trigger behind the steepening. Instead, we see this an acknowledgement from the market that rates could stay high for perhaps much longer than initially anticipated. This phenomenon should not be viewed in isolation. DM yields are highly correlated. Between the rise in 10Y JGB yields (amidst speculation of a less loose BOJ by the end of the year), rising oil prices and a rethink of term premium in the Eurozone, there have also been spill overs unto AUD and NZD rates. Even with the BOE on a surprise hold last week, it did not trigger any rallies in DM govvies. At current levels, 10Y yields are higher than our forecasts for the US, about level with our Bund forecasts and low compared to our JGB forecasts. Note that our forecasts looked very high compared to the market just six weeks ago. At these levels, we reckon that 10Y UST yields (>4.5%) are starting to price in a robust US economy. There are still no signs that the selloff will abate and importantly, we have not seen signs of capitulation. Curve wise, we maintain a steepening bias. While bear steepening is taking place now, a leg of bull steepening could kick in if things go awry. Between the still-strong USD and Asia central banks generally lacking EM peers in other regions in hiking rates, we find the mix extremely challenging for Asia rates currently.
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