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It’s not only the Donald and Kanye who are Dragon Energy,  bond bears definitely have the upper hand after taking the 3.05% scalp  in the US 10y, according to analysts at Nordea Markets.

Key Quotes

“Daenerys Targaryen must be envious. As a result of the technical damage done in the FI space, the outlook for the dollar has improved. Indeed, “the next major resistance levels are located far away, around 3.75% and 4%”.

“While the 10y spread is not a reliable indicator, as evidenced by the breakdown between spreads and FX during the twin deficit scare at the beginning of this year,  relatively higher US rates has led the recent USD move.”

“While USTs would appear over-sold from a technical perspective, we have to keep in mind that i)  regional surveys suggests ISM manufacturing will have rebounded in May, ii) core inflation risks remain on the upside (core CPI  could be back at lofty 2006-2007 rates early next year), iii) the recent rise in energy prices also create upside risks to near-term inflation both in the US and elsewhere.”

“And, turning to the Fed – it will hike rates once more already within a month – the pattern between what’s expected from the Fed during 2018 and 2019 suggests  further upside in the 10y yield towards 3.25% according to the Fed’s current dot-plot.”

“The main driver of the adjusted 10y spread is of course the respective 10y points, so let’s just keep it simple for now:  we think 10y spread developments will keep lifting the USD in the near term.”