Why it is still right to fade the rally

- Overview: "We continue to view the bond market rally as being fundamentally overextended. Hence, we still believe it is right to look for opportunities to fade the rally."
- US Rates Strategy: "10-year treasury yields are pricing 0%-1% growth and a high probability of significant balance sheet expansion by the Fed, we believe."
- Euro Rates Strategy: "Although Ireland’s significant prefunding has reduced its vulnerability, this is unlikely to be sufficient to reverse short-term sentiment and counteract positioning. Medium term, peripherals find themselves between the dangers of too weak and too vigorous growth."
- Global Inflation Strategy: "The risk-reward of staying short the 5yr, 5yr forward TIPS break-even inflation (BE) rate has diminished. We look at the changing dynamics of the euro BE curve and suggest further 10s30s BE flattening is likely. In the UK, we like buying 10yr linker asset swaps boxed against 30s."
- JGB Rates Strategy: "We believe that upside and downside risks to our 10yr JGB forecasts are now balanced but the threat of global deflation will probably leave many investors feeling that it is still better to buy sooner rather than later."
- Australia Rates Strategy: "Continue to hold long duration positions in 10yr CGS or buy on dips. Sell semi-government (semis) in the long-end at a spread of 25bps or under to 10yr CGS or to buy non-guaranteed semis at a spread 50bps over CGS."
- US Treasury Issuance Outlook: "The supply of fixed income duration in the belly is estimated to be $600 billion less in 2010 compared to 2009. We estimate that the Treasury will issue slightly less than $2 trillion in 2011."
- September European Supply Outlook: "The euro net cash requirement (NCR) is marginally negative in September (-€4bn): €63bn of redemptions and €15bn of coupons outweigh €75bn of gross supply The NCR is the most supportive for Belgium (-€17bn).


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