The price gains may be persistently higher than the market and economics community at large expect. If we're right, then this means the market is probably under pricing how high fedpolicy will develop, with a fed funds terminal rate needing to be higher than it priced - Anna Wong and the Bloomberg Economics team now forecast a 5% terminal rate.
If we do get to 5% then the two-year note is very mispriced. Even if the terminal rate doesn't get to the BE level, we are sympatric and think a 4.25% terminal rate more likely, which still suggests more bear flattening of the yieldcurve could be coming.
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