Morgan Stanley Fixed-Global Macro Strategist No Sleep Till Jackson Hole-103398315-此为英文文档

Idea

August11,202311:32PMGMT

GlobalMacroStrategist|Global

NoSleepTillJacksonHole

InvestorfocuswillnowturntotheFed'sJacksonHoleEconomicSymposiumon"StructuralShiftsintheGlobalEconomy."Manybondyieldsarenearmulti-yearhighsontheviewthatstructuralchangesmeanhigherequilibriumrates,butyieldsinChinaarenearmulti-yearlows–questioningthatview.

GlobalMacroStrategy

Wediscussthebiggestsurpriseof2023sofar:thatinflationfellfasterthanexpected,butinvestorsswitchedfocustogrowth,higherequilibriumrates,andbondmarketsupply.WealsodiscusswhethersentimentonChinacouldgetworseanditsimportancetotheglobalgrowthoutlookandriskassets.

InterestRateStrategy

Wemaintainlong5yUSTs,long30yTIPS,andFFV3H4flatteners.WekeepourEUR10y10yswaprecandDec23mid-curve96.75/97.00/97.25/97.50callcondor.WekeepourtacticalEUR2s10sswaprecandstrategicEUR30s50sswaprectrades.Weclosethe2s10sGermanASWboxandentera10s30sOATASWbox(short30yASW).WekeepthelongOATNov32versusBundAug32,theshort5yBonoversusEU20yandthelong10yBonoversusOATandPGB.WekeepourSONIA2s5s10sswapflyreceivingtradeandourshort5yASW.Wekeepourreceive10yOISoutrightpositionandlong20yJGBASWvsESTR.WenewlyenteraJGB20s30sflattener.

Currency&ForeignExchange

StayneutralonUSD,butshortUSD/CADandUSD/JPY.RiskstoUSratesandUSvs.RoWgrowtharebothskewedtowardaweakerUSD,butAugustlacksthecatalystsnecessarytoshakeUSDoutofitsranges.WepreviewtheAugustRBNZmeeting,whereweexpectmarketfocustobeontheimpliedpaceofOCRcutsinthebank'sforecasts.

Inflation-LinkedBonds

IntheUS,wemaintainlongTIIFeb50sandlong20yiotabias.

Short-DurationStrategy

Wemaintainshort7ySOFRswapspreadandFFV3H4flattener.WereviewJulyMMFholdings,thedriversoftherecentincreaseintheRRP,andouroutlookforreservesintoyear-end.

PleaseclickhereifyouwouldliketoreceivethedailyGlobalMacroCommentary.

MorganStanley&Co.LLC

MatthewHornbach

Strategist

+1212761-1837

Matthew.Hornbach@

GuneetDhingra,CFA

Strategist

+1212761-1445

Guneet.Dhingra@

AndrewMWatrous

Strategist

+1212761-5287

Andrew.Watrous@

EfrainATejeda,CFA

Strategist

+1212761-3529

Efrain.Tejeda@

MartinWTobias,CFA

Strategist

+1212761-6076

Martin.Tobias@

FrancescoGrechi

Strategist

+1212761-1009

Francesco.Grechi@

ZoeKStrauss

Strategist

+1212761-0407

Zoe.Strauss@

AllenFLiu

Strategist

+1212761-6049

Allen.Liu@

MorganStanley&Co.Internationalplc+

JamesKLord

Strategist

+44207677-3254

James.Lord@

DavidS.Adams,CFA

Strategist

+44207425-3518

David.S.Adams@

EricSOynoyan

Strategist

+44207425-1945

Eric.Oynoyan@

WantingLow

Strategist

+44207425-6841

Wanting.Low@

LorenzoTesta

Strategist

+44207677-0337

Lorenzo.Testa@

FabioBassanin,CFA

Strategist

+44207425-1869

Fabio.Bassanin@

Marie-AnaisCFrancois

Strategist

+44207425-1877

Marie-Anais.Francois@

MorganStanleydoesandseekstodobusinesswithcompaniescoveredinMorganStanleyResearch.Asaresult,investorsshouldbeawarethatthefirmmayhaveaconflictofinterestthatcouldaffecttheobjectivityofMorganStanleyResearch.InvestorsshouldconsiderMorganStanleyResearchasonlyasinglefactorinmakingtheirinvestmentdecision.

Foranalystcertificationandotherimportantdisclosures,refertotheDisclosureSection,locatedattheendofthisreport.

+=Analystsemployedbynon-U.S.affiliatesarenotregisteredwithFINRA,maynotbeassociatedpersonsofthememberandmaynotbesubjecttoFINRArestrictionsoncommunicationswithasubjectcompany,publicappearancesandtradingsecuritiesheldbyaresearchanalystaccount.

2

Idea

MorganStanleyMUFGSecuritiesCo.,Ltd.+

KoichiSugisaki

Strategist

Koichi.Sugisaki@

+8136836-8428

MorganStanleyResearch3

2.0

1.5

1.0

0.5

0.0

-0.5

-1.0

Upsidesurprises

Downsidesurprises

Upsidesurprises

Downsidesurprises

Idea

GlobalMacroStrategy

MatthewHornbach

Matthew.Hornbach@

JamesLord

James.Lord@

MORGANSTANLEY&CO.LLC

MORGANSTANLEY&CO.INTERNATIONALPLC

BondBearsHavingTheirCakeandEatingItToo

+1212761-1837

+44207677-3254

Ifwecouldre-writeourTop10surprisesfor2023,wewouldputthefollowingsurpriseatthetopofthelist:Inflationratesfallfasterthanexpectedinmanyimportantdevelopedandemergingmarketeconomies,butcentralbankrhetoricremainshawkishnevertheless.Meanwhile,bondmarketinvestorsswitchfocusawayfrominflationtowardgrowth,higherequilibriuminterestrates,andbondmarketsupply.

Asfarassurprisesgo,it'snotthatfar-fetched.Andifaninvestorwantedtocraftaplausiblestoryinordertojustifystayingunderweightduration(shortthebondmarket),itwouldnotbesoeasytodismiss.Withtheexceptionofaregionalbankingsystemscare,whichinterruptedtheplotline,thehypotheticalsurpriseturnedintoreality.

Indeed,bondmarketsweren'tabletosustainralliesdespiteCPIinflationcomingdown(orsurprisingtothedownside)inmajordevelopedandemergingmarketeconomies(seeExhibit1andExhibit2).Perceivedstrengthineconomicactivityanditspossibleimplicationsforthefuturepathofinflation,i.e.,thatitsrecentlullwouldprovetransitory,havekeptbondbuyersatbay.

Exhibit1:DevelopedmarketheadlineCPIinflationsurpriseindexes

%

Aug-19Aug-20Aug-21Aug-22Aug-23

1msurprisebalance6msurprisebalance

Source:MorganStanleyResearch,Bloomberg

Exhibit2:EmergingmarketheadlineCPIinflationsurpriseindexes

%

2.0

1.5

1.0

0.5

0.0

-0.5

-1.0

Aug-19Aug-20Aug-21Aug-22Aug-23

1msurprisebalance6msurprisebalance

Source:MorganStanleyResearch,Bloomberg

Inaddition,higher-than-expectedfiscaldeficitsandconsequentimplicationsforgovernmentbondsupplyhavebroughtmoresellersofthebondmarkettobear.TheUSfederalgovernmentbudgetdeficithasincreasedby$1.3trillionoverthepast12months(135%Y/Y),with2/3rdoftheincreasedrivenbyhigheroutlaysand1/3rddrivenbylessrevenue.Thatincreasecameonthehealsofalargedeclineinthedeficitby$1.9trillion(-66%Y/Y)theyearbefore(seeExhibit3andExhibit4).

4

Defi

cit

grow

ing

600

500

400

300

200

100

0

73

king

shrin

Defi

cit

Idea

Exhibit3:Rolling3-monthand12-monthUSfederalbudgetdeficitandCBO-basedprojection

CBOforecast

US$billions

1,000

500

0

-500

-1,000

-1,500

-2,000

-2,500

-3,000

-3,500

-4,000

-4,500

201720182019202020212022202320242025Rolling3mannualizeddeficitRolling12mdeficit

Source:MorganStanleyResearch,USTreasury,CBO,Bloomberg

Exhibit4:USfederalbudgetdeficitY/YandCBO-basedprojection

CBOforecast

%

300

250

200

150

100

50

0

-50

-100

201720182019202020212022202320242025

Rolling12mfederalbudgetdeficitY/Y

Source:MorganStanleyResearch,USTreasury,CBO,Bloomberg

Theconsequentsupportforeconomicactivityoverthepastyearlikelyhelpedoffsetsomeofthetighteninginmonetaryandfinancialconditionsduringthisperiod.Andwithheadlineeconomicdatasuggestingresilientactivity,the"softlanding"narrativehasincreasinglydominatedthe"hardlanding"one(seeExhibit5andExhibit6).

Exhibit5:Dailystorycountforthetopic“softlanding”fromBloomberg,socialmedia,andnews

#ofstories

700

588

600

500

400

300

200

100

0

'13'14'15'16'17'18'19'20'21'22'23

1MMA

SoftLanding-StoryCount:All

Source:MorganStanleyResearch,BloombergNT<GO>

Exhibit6:Dailystorycountforthetopic“hardlanding”fromBloomberg,socialmedia,andnews

#ofstories

700

'13'14'15'16'17'18'19'20'21'22'23

HardLanding-StoryCount:All1MMA

Source:MorganStanleyResearch,BloombergNT<GO>

Infact,"softlanding"maynolongerappropriatelydescribetheoutcomethatmarketspricestoday,orwhatinvestorsreallyhaveinmind.PopularGDPnowcasts,liketheAtlantaFed'sGDPNow,showwell-above-trendgrowthandhaven'tspentmuchtimeinthesoft-landingzone(belowpotentialgrowth,butnotnegative,seeExhibit7).

It'sironic,then,thatthe"nolanding"languagehasn'treappearedonthemarketnarrativestagedespiteitsbriefcameoearlierthisyear.Perhapsitslackofreturnreflectsinvestorcapitulationto,insteadofacceptanceof,theheadlinegrowthdatapresentedbygovernmentagencies,e.g.,theBureauofEconomicAnalysis(BEA)andBureauofLaborStatistics(BLS)intheUS.

MorganStanleyResearch5

Idea

Exhibit7:AtlantaFedGDPNowoverthepastyear

%

4.5

4.0

3.5

3.0

2.5

2.0

1.5

1.0

0.5

0.0

Soft-landingzone

4.1

Aug-22Nov-22Feb-23May-23Aug-23FRBAtlantaGDPNow

Source:MorganStanleyResearch,FRBAtlanta

Exhibit8:HouseholdandEstablishmentsurveyoverall/unitresponserates

%

95

90

85

80

17pp

75

68.9

70

65

60

55

13pp

50

45

42.7

40

'13'14'15'16'17'18'19'20'21'22'23Currentemploymentstatistics(Establishment)Currentpopulationsurvey(Household)

Source:MorganStanleyResearch,BLS

ThedatareportedbytheBLSappearoflowerqualitytodaythanbeforethepandemic.AstheBLSstates,"BLSdatacollectionwasaffectedtodifferingdegreesbythepandemic.Somesurveyshadtocollectdatainnewwaysbecausein-personvisitsweresuspendedandtelephonecollectioncentersweretemporarilyclosed.Somesurveyrespondents'availability,ability,orwillingnesstoprovidedatawasdisrupted."

Withthepandemicbehindus,thelastingreasonforlowerresponseratesappearstobewillingness.Indeed,mostoftheBLSsurveysarevoluntary.Thissuggeststhateither(1)datamaynotaccuratelyreflectactivityorrevealturningpointsinactivity,and/or(2)revisionstodatamayincreasinglycontainimportantinformationnotincludedininitialdatareleases.

OureconomistshighlighttheupcomingpreliminarybenchmarkrevisionstotheBLSEstablishmentSurveyonAugust23.Thesepreliminarybenchmarkrevisionsincludeallmajorindustrysectors,aswellastotalnonfarmandtotalprivateemployment.ThisreleaseoccursjustbeforetheAugust24-26JacksonHoleEconomicPolicySymposiumon"StructuralShiftsintheGlobalEconomy."

Untilthesemajoreventspass,wedon'tthinkglobalbondmarketyieldsortheUSdollarwillrisemuchfurther.Wecontinuetothinkinvestorsarechasingthewrongmarketnarratives,andadviseagainstjumpingonthebandwagonthinkingthathigherequilibriumratesandgovernmentbondsupplywilltakeyieldseverhigher.

CanSentimentonChinaAssetsGetWorse?

CouldsentimenttowardChina'sriskassetsgetmuchworse?Thatisthequestionwehearfromsomemarketparticipants.ManyarescepticalabouttheprospectforasustainedeconomicreboundinChina,butmanyassumethatsinceaslowrecoveryisthebasecaseformostmarketparticipants,thatthismeansmarketsareunlikelytobesurprisedtothedownside.

6

58

56

54

52

50

48

46

44

42

40

Idea

Weseeafewissueswiththislineofthinking.First,justbecausethebaselineofmanyinvestorsisforcontinuedsubduedgrowthdoesn’tmeanthesesameinvestorsarenotattachinganyprobabilitytoarecovery.Nobody'sbasecaseisheldwith100%conviction.

Moreover,manysell-sideeconomistsgenerallystillassumethattherewillbearecoveryingrowthlaterthisyear.TheMorganStanleybasecaseisinthecampofa4Qsequentialrecovery,resultinginfull-yeargrowthofaround5%–aroundthegovernment'starget.TheBloombergconsensusisalsoat5.0%,suggestingasimilarexpectationofarecoverylaterthisyear.

Evenifinvestorshaveamorenegativeview–whichjudgingbyourclientconversations,theydo–allmarketparticipantswillbewatchingwhetherthemonthlydataprintsareinlinewiththeBloombergconsensus.SincetheBloombergconsensusismadeupofsell-sideeconomistforecasts,it'slikelythoseforecastswillreflectthepathtowardarecovery.

Generally,marketsdoreacttowhetherthatdatacomeinasanupsideordownsidesurprisevstheBloombergconsensusexpectation,somarketscouldwellreactnegativelyevenifthedataaremoreinlinewithamorescepticalbuy-sidecommunity.

Anddatahavecertainlydisappointedthesell-sideconsensussofarin3Q.

Theinitialindicationswerepoor,withtheChinacompositePMIforJulyfallingtoanewpost-re-openinglowof51.1,drivenbyweaknessinthenon-manufacturingPMIandamanufacturingPMIthatremainsbelow50(Exhibit9).

Then,Julytradedatapaintedbothaweakpicturefordomesticdemandandexternaldemand,withimportantandexportsbothpostingdouble-digity/ydeclinesandcominginbelowexpectations,particularlyontheimportside.

Exhibit9:PMIssuggestgrowthisslowing...

Level

60

Jul-20Jan-21Jul-21Jan-22Jul-22Jan-23Jul-23

ChinaManufacturingPMI

ChinaNonManufacturingPMI

ChinaCompositePmi

Source:Bloomberg,MorganStanleyResearch

Exhibit10:...whiledataoncreditgrowthappeartoconfirmit

CNYbn

7,000

6,000

5,000

4,000

3,000

2,000

1,000

0528.2

Feb-17Mar-18Apr-19May-20Jun-21Jul-22

ChinaTSFChg(m-m)6mma

Source:Bloomberg,MorganStanleyResearch

Asifthatwasn’tenough,CPIandPPIdataforJulyshowedthattheeconomyhasslumpedintodeflation,withCPIcominginat-0.3%y/yandPPIat-4.4%y/y.DeflationwillmakemanagingChina'sdebtmorechallenging,asitwillraisetherealcostofservicingit.Ifinterestratesdon’tfalltoeasetheburden,inthefaceofdecliningpricesofgoodsandservices,andthusrevenues,therealcostofservicingthedebtwilllikelyrise,posinganotherchallengetothegrowthoutlook.

%

-22Jul-22Jan-23cturingPMInufacturingPMI

sitePmi

Jul-23

MorganStanleyResearch7

450

400

350

300

250

200

150

100

50

Idea

Andtoroundtheweekoff,newloansextendedinJulycameinsignificantlybelowexpectations,withnewbanksloanstotheeconomyata17ylow(TSFShowsActionNeededtoBreakDebt-DeflationLoop).Totalsocialfinancingwascertainlyweakforthemonth,andsuggeststhecreditimpulseseenoverthelast6m–whichiscertainlymuchstronger–mayhavepeaked(Exhibit10).

AlloftheabovereflectsthedatathathavecomeinsofarforJulyandislinewiththefeedbackwearereceivingfromclients."Don'texpectareboundanytimesoon".Andyetmarketsstillrespondtothesamedatabecausethedatahavecomeinweakerthantherosiersell-sideconsensus.IftheBloombergsurveyalsoincludedthebuy-sidecommunity,themarketreactionmaywellbedifferent.

Inthecomingweek,IP,retailsales,andfixedassetinvestmentdataforJulywillprovidefurtherguidance.Expectationswillbelowgivenhowweakrecentdatahavebeen,soitmaynottakemuchtosparkarecoveryinCNH,particularlyifitiscoupledwithmoreforcefulmeasuresonstimulus.

Yet,iftherosiersell-sideexpectationssetthethresholdforwhetherthedataaredefinedasanupsideordownsidesurprise,wecan'truleoutmorenegativesurprisesforthemarket.

Inthemeantime,China'scapitalmarketsaresendingnegativesignalsaboutthepropertysector.ThetotalreturnsoftheiBoxxChinaRealEstateHighYieldIndexhavedroppedbacktothelowsseenaheadofthere-openingin4Q2022(Exhibit11).Consumersentimenthasbeenweigheddownduetotheweaknessofthissector,andthesignalfromthemarketssuggeststhiswillbeanotherheadwindtoeconomicgrowth.

AllofthisisimportantbecausewithoutaChinarecovery,theglobalgrowthoutlooklooksunevenandincreasinglydependentontherosierconsensusexpectationsfortheUSeconomybeingrealised.Exhibit12showstheanaverageoftheconsensusGDPforecastsfor2023and2024fortheUS,Eurozone,andChina.

OnlytheUSisseeingupwardrevisionsatpresent.Shouldthatgointoreversethen,riskassetscouldbeinforaroughride,particularlysincethereisnoprospectforanyadditionalstimulusfromtheUSorECBanytimesoon.

Exhibit11:Chinapropertysectorremainsunderpressure

Index

Aug-13Aug-15Aug-17Aug-19Aug-21Aug-23

iBoxxChinaRealEstateHYTotalReturnIndex

Source:Bloomberg,MorganStanleyResearch

Exhibit12:OnlytheUSisseeingupwardrevisionstoGDPforecasts

%

2.5

2.0

1.5

1.0

0.5

0.0

%

5.45.35.25.154.94.84.74.6

4.5

Jun-22Sep-22Dec-22Mar-23Jun-23ConsensusUSGDPForecast(Avof23&24)

ConsensusEZGDPForecast(Avof23&24)ConsensusChinaGDPForecast(Avof23&24,rhs)

Source:Bloomberg,MorganStanleyResearch

8

Idea

OurCurrentStanceOnMarkets

Inglobalratesmarkets,wemaintainlong5yUST,FFV3H4flatteners,andlong30yTIPS(TIIFeb50).WemaintainlongFeb44iotaandkeepourshort7ySOFRSS.

Intheeuroarea,weenterlonga10s30sOATASWbox.WekeepourEUR10y10yswaprecandDec23mid-curve96.75/97.00/97.25/97.50callcondor.WemaintainourEUR2s10sswapnormalisationrectradeandourlongvolatilityEUR30s50sswaprectrade.Wekeepourshort5yBonovs20yEU,ourlongOATNov32vsBundAug32,andourlong10yBonovsOATandBund.Wecloseourtactical2s10sGermanASW.WemaintainashortBTPMay33versusBundAug32.

IntheUK,wekeepreceiving5yinthe2s5s10sSONIAfly,andwemaintainourshort5Y

ASW.

InJapan,weenterintoaJGB20s30sflattener.Wemaintainreceive10yTONAOISoutrightandlong20yJGBASWvsESTR.

Inthedollarbloc,wemaintainpayNovember2023RBAvs.receiveNovember2024RBA.WecontinuetorecommendreceivingtheDecember2024BoCmeeting.

Inforeignexchangemarkets,wemaintainshortUSD/JPY(target:133,stop:145),shortUSD/CAD(target:1.28,stop:1.36),andlongEUR/GBP(target:0.93,stop:0.84).

MorganStanleyResearch9

Idea

InterestRateStrategy

UnitedStates

Coolinginflation=hotopportunity?AweakCPI,declininginflationexpectations,andrisingjoblessclaimswereunabletooffsetrisingyieldmomentum,aweak30yauction,andopticallystrongPPI.Wethinkmarketsignoringcoolinginflation,whilepayingattentiontoPPI,ismisplacedfocus.Additionally,wethinkmarketmovesaremoreafunctionofpositioningthanfundamentals.Wecontinuetosuggestalongdurationbias–long5yUSTs,long30yTIPS,andFFV3H4flatteners.

Unequivocalinflationprogress:TrimmedmeanCPIstayedlowforthefifthconsecutivemonth,andmedianCPIfelltothelowestlevelsinceMarch2021whenthesurgeininflationbegan.Lookingahead,theoutlookforrentsandusedcarssuggestsmorecoolingahead.CPIfixingssuggestacoolingofcoreCPIto2.3%bymid-2024.

Focusonrealratestodriverateslower?WithmarketspricingadeclineincoreCPI,itisnotablehowquicklytherealrate-definedasfedfundsrateminus12mtrailingcoreCPI-startstorisefrom0.5%currently,closeto2.75%bymiddleof2024.NYFedpresidentJohnWilliamssaidthattheFedmightlookatkeepingrealratesstableasinflationcools,andmoverealrateslowertowardsneutralasinflationgetscloserto2%.Fromthatperspective,marketspricinganother75riseinrealyieldsin2024seemsexcessive,inourview.

WhataboutcorePCEforecastsliftinghigher?BulkoftheuptickinPCEforecastcomesfromhigherairfares(volatile)andfinancialservices,whichmimicequitymarketperformance-notlabormarketstrength-afactacknowledgedbyChairPowellhimself.Additionally,evenifthecurrenttrend@0.27%m/mcorePCEsustains-ahighbar-itwillstillleadtoabreakinthestickyinflationrangetothedownside,startingintheJulyPCElaterthismonth.

Euroarea

ThepriceactioninEGBsposttheUSnon-farmpayrollsistypicalofashort-squeeze.AlthoughfinalinvestorshavereducedtheirshortexposureonGermanfutures,theshortbaseremainssignificantespeciallyattheverylongend,highlightinginvestors'overallsteepeningbiasontheEURcurve.ThepersistentweaknessofUSTshasbeenweighingonEGBsbutwestillbelievethatthedivergingmacroeconomicdatabetweentheUSandeurozonewarrantsomemajoroutperformanceofcoreEGBsoverthecomingweeks.Ontopofthat,westillconsiderthatthediminishingEGBsupplyandtheextremecurvedislocationwarrantstrongerpriceactionatthelongend.WekeepourEUR10y10yswapreceivingandDec23mid-curve96.75/97.00/97.25/97.50Euriborcallcondortrades.Onthecurve,wekeepourtacticalEUR2s10sswapnormalisationtradeandourlongvolatility30s50sswapreceivingtrade.OnASW,weclosethe2s10sGermanASWboxaftertherecentinversionmove.WeseeabetteropportunityonOATASWthroughthe10s30sOATASWwidener(i.e.,long10yOATASW)whichhasdecoupledfromtheBundASW,andshouldalsobenefitfromtherenewedissuanceandBundASWwideningmovethatweexpectfrommid-September.

Idea

10

UnitedKingdom

UKratesoutperformancerelativetoEURrateshaspausedforasecondweekinarow.Investors'focusthiscomingweekwillbeonthereleaseoflabordataonTuesdayandinflationdataonWednesday.AnupsidesurpriseonwagesonTuesdaycouldofferanopportunitytofadearesteepeningofthe2023/2024MPCcurve.RegardingtheSONIAcurve,althoughithassteepenedoverthepastweeks,the10s30ssloperemainstooflatversusourmodel.Investorshavingsteepenerscouldalsohedgetheirpositionwithflattenersineurowherethedislocationisbackto2015extremes.Intheverynearterm,wepreferkeepingthe2s5s10sSONIAreceivingtradeinsteadofaddingnewtradesaheadoftheUKinflationdata.Wekeepourshort5yASW,whichshouldbenefitfromthestartoftheseasonalASWtighteningperiodthisweek.

Japan

WeexpectaresilientJGBmarketwiththeshort-termratesexpectationanchored.Recentdomesticdatahavealsobeensupportiveforsuchpricing,withthedisappointingcashearningsdataaswellasthestabilizationofCGPIfoodprices.Thisleavefluctuationsinthetermpremiumasthemaindriverofperformance.

Ourownassessmentisthatthe10yJGBremainsrich,but30yJGByieldlevelsarenowquiteclosetotheir“fair”valuesconsistentwiththe10yUSTyieldlevel.Ontheotherhand,10yTONAOISremainscheaperthanonemightexpectgivensuchmutedexpectationsofashort-termpolicyratehike,withhigherUSTyieldlevelsnotprovidinganadequateexplanation.

Webelievethatsuchcheapnessin10yOISwillgraduallydissipateasmarketscontinuetosettledown.Wesuggeststickingwith10yJPYTONAOISoutrightreceiverpositions,believingthattheyshouldsoonstarttobebuoyedbybothgreaterbullishnessondurationintosummervacationseason,andanarrowingoftheaforementionedriskpremium.

Wealsohaveaconstructivestanceforthelong-endJGBs,asweseeJapaneselifershaveampleroomtocatchupwiththesuper-longJGBpurchasesintotheendof1HFY2023(September-end).Meanwhile,banksmaystillhavelittleincentivetorestorethedurationexposuregivennomandateforthedurationrisk.Wethusseescopeforaflatteningofthesuper-longcurveandaccordinglysuggestinitiatingJGB20s30sflatteners.

MorganStanleyResearch11

%

5.65.45.25.04.84.64.44.2

4.0

Idea

UnitedStates|Coolinginflation=hotopportunity?

MORGANSTANLEY&CO.LLC

GuneetDhingra,CFA

Guneet.Dhingra@

Aryaman

Aryaman@

+1212761-1445

+91226514-3441

View

Duration

Bullish

Curve

Neutral

Inflation

Bullishrealrates

Remarks

Weakeninginflation,attractive

levels,bankstresses,seasonality,

positioning

Weakeninginflation,attractive

levels,bankstresses,seasonality,

positioning,pensionbid

Back-endrealrateshistoricallyattractive,fadebear-steepening

Trades

Long5yUST

FFV3H4flatteners

Long30yTIPS,Long20yIota

Thisweek,anotherdownsideinflationprintaff