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IFI_Monthly_Interest_Rate_Outlook_-_February_2018.pdf

Please find attached the February 2018 edition of the IGM Monthly Interest Rate Outlook.

Highlights:

Bond yields are on the way up ... BEIRs and therefore inflation expectations have played a major role in some markets ... which as Senior Editor/Analyst Marcus Dewsnap suggests is a significant reason for the interest rate expectations shift priced-in by markets via OIS curves [Pages 2-5]

  • Technical Analysis is also supportive of the higher sovereign yield story [Pages 20,21, 22,23] with European FI TA Chief Ed Blake indicating significant moves are afoot in Europe [Page 6]
  • A major OIS mover is in the Eurozone, but NOT because of an inflation expectations shift for this year at least [Pages 2-5] � maybe it's that growth thing � but as European Fixed Income Manager Alvin Baker writes, 'all told, despite the Euro front-running some further stimulus withdrawal/policy action, 2-10 year yields do NOT fully reflect a risk premia for quicker normalisation. Post ECB, the 5-year Bobl reached 0% - an important milestone if that can turn positive and stay above that level' [Pages 8-9].
  • Meanwhile, the CNB tightened once more in January, and it is almost certain to do so again � although Emerging Markets Managing Analyst Chris Shiells suggests that given current forecasts, only one more hike this year [Pages 6, 13].
  • In China, the PBoC's removal of the counter-cyclical factor mechanism in January finalises the abolition of measures introduced in August 2015 to defend the Cny. As Tim Cheung, IGM Head of China, writes (Page 16), faded capital outflow pressures combined with improved FX reserves outlook plus a solid recovery of GDP growth not only justifies this, it also suggests it is time for FX rate normalization.

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