Bond Outlook June 8th

So now “everyone” believes USD 10-year rates will decline further, including Alan Greenspan and Stephen Roach. “Everyone” even includes ourselves, but with a key proviso: when the RMB is finally revalued, the resulting reduction in demand for T-Bonds should cause yields to rise. That is why we continue to believe a barbell is the appropriate strategy to deal with a rising Fed rate and further USD yield curve flattening.