⚖️🔺 Monetary Policy Driving Yields Higher: Cable FX Macro

• The chart below compares U.S. growth expectations to the U.S. 10-year yield. Clearly, rates underperformed as growth expectations jumped higher, this will go in line with the thinking that the Fed could keep policy restrictive for longer

• Looking at a more detailed decomposing of what is driving rates, a model from Bloomberg economics shows that the 140bps increase in the 10-year yield since mid-March has been led by monetary policy

• Other factors like supply/demand dynamics also play a role, however, to a lesser extent. Rates have also seen a rise in sensitivity to risk sentiment, this factor is second to monetary policy

• Earlier in the year, the contribution from monetary policy to moves in U.S. rates had fallen to a cycle low, it has now increased to match the highest since November. The last time we saw policy adding to yields by this much, rates bottomed, which led to the 10-year yield declining by about 60bps over the following months