Analysts at TD Securities are expecting monetary policy divergence to fade in 2019 as the Fed and BoC continue to hike toward their respective terminal rates and the ECB/BoJ/BoE also follow a less accommodative policy path.
“We favor owning US rates against the UK, Canadian (CA) rates against Aussie (AU) rates, EU against the UK, AU against NZ, US against AU, and US against long end CA.”
“With the ECB ending QE, BoJ lowering its buying amounts and Fed portfolio runoff hitting full stride, global net government bond supply should continue to rise, putting some upward pressure on term premium.”
“For a Japanese investor, it is increasingly becoming less attractive to buy hedged or unhedged USTs/Bunds/ OATs. With duration risk returning to the EU market, European investors would have lower needs to diversify into foreign assets (primarily USTs). Ultimately though, we expect demand for government bonds to emerge from risk asset underperformance.”
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