Summary of Key Points from the Conference Call Industry Overview - The conference call focuses on the **US Rates Strategy** within the **North American** financial market, particularly regarding the **SOFR (Secured Overnight Financing Rate) swaptions market** and its implications for investors. Core Insights and Arguments - **Investor Sentiment**: Investors appear complacent regarding tariffs and their potential impact on inflation and the labor market, as indicated by the SOFR swaptions market [10][11][21] - **Probability Analysis**: - There is a **76% probability** that 2-year term SOFR rates will remain within a **100 basis points (bp)** range around the 3-month at-the-money forward rate over the next 3 months [7][15] - A **42% probability** exists for the same rates to remain within a **100 bp** range around the 12-month at-the-money forward rate over the next year [25] - A **7% probability** that 2-year term SOFR rates will fall more than **75 bp** over the next 3 months, and a **5% probability** that 30-year term SOFR rates will rise more than **75 bp** in the same period [26] - **Market Dynamics**: The upcoming week is expected to bring significant events, including the **FOMC meeting** and the **Treasury quarterly refunding announcement**, which could influence market behavior [10][34] - **Curve Steepening Strategy**: The recommendation is to maintain long positions in UST curve steepeners, particularly at the 5-year maturity, as the net balance of risks favors this strategy [10][41] Additional Important Insights - **Economic Data**: Key upcoming data releases include labor market reports and inflation metrics, which could significantly impact market expectations and strategies [34][36] - **Tariff Implications**: The potential for higher tariffs could influence the Fed's dot plot and market expectations for future rate cuts, particularly if inflation data aligns with or exceeds expectations [28][34] - **Trade Ideas**: Specific trade ideas include maintaining long positions in UST 5-year notes and UST 3s30s yield curve steepeners, with defined targets and stop-loss levels [44][46] Conclusion - The overall sentiment in the US rates market indicates a level of complacency among investors, with significant upcoming events that could alter this perception. The strategies suggested focus on maintaining long-duration positions and preparing for potential market shifts based on economic data and policy announcements.

Investment Rating - The report maintains a bullish stance on U.S. Treasury duration and recommends staying long in curve steepeners [6][41]. Core Insights - The report highlights a dynamic labor market with slower private payroll growth but a low unemployment rate, indicating lower potential growth and equilibrium rates, which may lead to more Federal Reserve rate cuts [6][9][32]. - The employment report shows strength in state and local government jobs, particularly in education, which contributed significantly to overall payroll growth [10][11][22]. - The report suggests that as market-implied trough rates decrease, U.S. Treasury yields are expected to fall, supporting a bullish outlook on U.S. Treasury duration [35][41]. Summary by Sections Labor Market Analysis - The June employment report indicates slower private payroll growth, with a tighter labor market due to a decline in the labor force participation rate [9][32]. - State and local governments added 80,000 jobs in June, with education jobs accounting for 63,000 of these [11][12]. - The report notes that fewer teachers left for summer break than anticipated, which may have artificially boosted the seasonally adjusted figures [18][22]. Economic Outlook - The report emphasizes that lower potential growth will likely weigh on the equilibrium interest rate, suggesting that the Fed may need to cut rates more than currently expected [33][34]. - It is anticipated that the Fed's longer-run target rate may need to be adjusted downward over time [33][34]. Investment Strategies - The report recommends maintaining long positions in U.S. Treasury securities, particularly in the 5-year maturity sector, and suggests a UST 3s30s yield curve steepener [41][46]. - Specific trade ideas include maintaining long positions in UST SOFR swap spreads and SFRZ5 futures, with targets set for various instruments [46][49].

Investment Rating - The report indicates a dovish outlook for G10 policy rates through 2026, suggesting a significant decline in rates, particularly in the US, where 10-year Treasury yields are expected to reach 4.00% by the end of 2025 and just above 3.00% by the end of 2026 [6][27]. Core Insights - The report emphasizes that the US dollar is expected to weaken significantly, with the DXY forecasted to fall an additional 9% over the next 12 months to 91, driven by a convergence in US rates and growth to peers, alongside increased FX hedging flows [6][69]. - The report outlines a bearish outlook for global growth, particularly in the US, where real GDP growth is projected to decline from 2.5% in 2024 to 1.0% in both 2025 and 2026, influenced by tariffs and immigration restrictions [15][23]. - Inflation is expected to moderate globally, with core PCE in the US forecasted to reach 4.5% before declining, while the euro area is projected to undershoot the ECB's inflation target due to sluggish growth [23][34]. Interest Rate Strategy - In the US, Treasury yields are expected to range trade through 3Q25 before declining, with a forecast of 10-year yields at 4.00% by the end of 2025 and a larger decline in 2026 as the Fed is anticipated to cut rates by 175 basis points [3][27]. - The euro area is projected to see the 10-year Bund yield fall to 2.40% by 4Q25 and 2.20% by 4Q26, influenced by more ECB easing than currently priced in [3][35]. - In the UK, 10-year gilt yields are expected to end 2025 at 4.35% and 2026 at 3.80%, with the Bank Rate projected to decline further due to a slowdown in economic activity [41][43]. Currency & Foreign Exchange - The report forecasts continued weakness in the USD, with significant declines against safe-haven currencies such as EUR, JPY, and CHF, as the DXY is expected to fall to 91 by mid-2026 [8][69]. - Specific currency pairs are projected to move as follows: EUR/USD to rise to 1.25, GBP/USD to 1.45, and AUD/USD to 0.69 by mid-2026, reflecting various economic factors [8][69]. Inflation-Linked Bonds - In the US, breakevens are expected to remain elevated until 3Q25 due to tariff-induced inflation, with a tightening forecast around 2Q26 as inflationary pressures begin to cool [9]. Sovereign Supply Outlook - The report anticipates a decrease in net coupon bond supply across the G7, amounting to US$2.72 trillion in 2025, down 5% year-over-year, influenced by fiscal policy uncertainties [53][62].