The impact of impending regulatory reform appears to be accelerating in short-term bond markets, providing one of the few clear opportunities for investors. Recently, this appears to have spread into the front end of municipal curves, providing flexible investors the opportunity to deploy cash for attractive near-term returns. More broadly, while Jackson Hole highlighted the Fed’s belief in the efficacy of its longer run toolkit once policy has normalized, near term, investors may take little solace in such reassurances as they come with the acknowledgement that current monetary policy holds less capacity to provide accommodation were it to become necessary. We anticipate movement away from the bond QE + negative rate flattening of global yield curves over the past several years, leading to less flattening pressure—and less preference for the long end—in the U.S.
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