Forget US Yield Curve Bets, Look to Canada Instead, Says BofA

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Forget US Yield Curve Bets, Look to Canada Instead, Says BofA
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(Bloomberg) -- As the Treasury yield curve continues to flash its longest-ever warning, Bank of America Corp. says betting on rate shifts in Canada is the...

-- As the Treasury yield curve continues to flash its longest-ever warning, Bank of America Corp. says betting on rate shifts in Canada is the better play.A Struggling Business Park Deals a Blow to Singapore's Regional Hub AmbitionsTheir call comes as Thursday marks the 482nd consecutive day that yields on two-year Treasuries have traded above those on 10-year notes — oft considered a herald of a coming recession.

Overnight funding rates “are above bond yields, funded Treasury longs have negative carry,” they argued, and beating the carry costs — or the price to hold bonds and then roll over into new ones — will require more aggressive Fed easing than currently priced in.A better alternative would be to simply head over to Canada, where the central bank will likely ease its monetary tightening faster than their American counterpart.

The analysts reasoned that the market is currently underestimating the Bank of Canada’s ability to diverge from the Fed, and that once the easing cycles get underway, the so-called terminal rates of the Fed and BOC cycles could move closer.

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