What a week in global fixed income! We thankfully rotated out of bonds and into cyclical exposures in steepeners, commodities, energy and materials ahead of the worst storm and the big question is now whether this is just a “hump” or the start of a broad steepening trend.

In last week’s Portfolio Watch we declared that we anticipated a steepening curve:
”Many are urgently discussing the ramifications of the BoJ move to push the band on the YCC. With equities already looking frothy and volatility being low we may see some reversal near term – or perhaps stonks just carry on their insufferable streak and shorts keep getting wiped out as shares are sold to buy cheap calls.

Who knows. What I am willing to wager is that the BoJ has provided the necessary catalyst needed for the yield curve to steepen – a position that we entered recently.”

While debatable what the drivers would be the call has aged pretty well- and this week we have dived a bit further into the dynamics of the drivers behind the steepening:

We listed four reasons why we see this as a major change of trends for global FI with continued steepening on the cards earlier this week.