📝U.S. Two-Year Yields Could Reach 3.7%: Nomura

See risks of Treasury 2-year yields climbing close to 3.7%. Should the FOMC revise up the dots plot next month, a market-implied peak of the federal funds rate may rise from about 3.8%. The September FOMC meeting will provide clues to how hawkish the Fed will become, while concern over a growth slowdown will drive further inversion of the yield curve. If the policy rate rise to 4%, 2/10-year yield spread could drop to -80bps to -90bps. Those who aim for a capital gain could enter flatteners once the market digests hawkish catalysts from the September Fed meeting. - Nomura Rates Strategy