China to slow long-term US rates – Rabobank

FXStreet (Guatemala) – Analysts at Rabobank explained that although the inflation outlook is likely to delay the Fed’s first rate hike beyond September, the domestic momentum of the US economy supports their view that the first hike will take place before the end of the year, most likely in December.

Key Quotes:

“The troubles in China supported our bullish near-term view on US treasuries last month. In fact, those yields have fallen even faster than we anticipated a month ago.”

“We expect rates to reach their lowest point at the one month horizon after the Fed decides not to hike in September (which is our baseline scenario).

Once the hiking cycle gets closer, we expect rates to rebound and during the hiking cycle we expect a bearish flattening of USD rate curves, as the short end of the curve tends to climb faster during a hiking cycle.

What’s more, the implications of the Chinese slowdown for US inflation – largely through subdued commodity prices – are likely to restrain the upward pressure on longer-term rates from the Fed’s hiking cycle.”

Analysts at Rabobank explained that although the inflation outlook is likely to delay the Fed’s first rate hike beyond September, the domestic momentum of the US economy supports their view that the first hike will take place before the end of the year, most likely in December.

(Market News Provided by FXstreet)