Jerome Powell Attends Supreme Court Hearing on Trump Effort to Fire Fed Governor, Calling It Historic 
BOJ Rate Decision in Focus as Yen Weakness and Inflation Shape Market Outlook 
Elon Musk’s Empire: SpaceX, Tesla, and xAI Merger Talks Spark Investor Debate 
MAS Holds Monetary Policy Steady as Strong Growth Raises Inflation Risks 
BOJ Policymakers Warn Weak Yen Could Fuel Inflation Risks and Delay Rate Action 
Bank of Canada Holds Interest Rate at 2.25% Amid Trade and Global Uncertainty 
Though Treasury Secretary Steven Mnuchin said this week that he is seriously considering 50-or 100-year debt, we continue to think the scope for adding either maturity point is limited. While internationally, the outcome of the French presidential election remains a very large tail risk.
Last week yields initially rose on the back of Yellen’s semi-annual testimony before Congress, as well as a higher-than-expected CPI report, which led us to pull forward our projections for this year’s rate hikes to May and September versus June and December.
Buy 5-year real yields: With inflation risk rising, the more structural drivers of low real productivity growth still very much in place, and attractive near-term carry, we recommend buying 5-year real rates.
Receive in $300mm notional of a 1Mx5Y forward starting swap (start date 3/28/17, maturity 3/28/22, coupon 2.028%) versus paying fixed in $293.9mm of a 1Mx5Y inflation (US CPI) swap (start date 3/28/17, maturity 3/28/22, zero coupon) at a current spread of -18.1 bp.
Stay positioned for an underperformance of USD swaps in a sell-off by selling 3Mx5Y AUD versus USD payer swaptions.
Stay long $100mn notional 3Mx5Y ATMF USD payer swaption (notification date 5/10/17, maturity date 5/12/22, strike 2.048%, premium 75.8bp) versus selling A$152mn notional of 3Mx5Y ATMF AUD payer swaption (notification date 5/10/17, maturity date 5/11/22, strike 2.595%, premium 60.4bp).
This trade is constructed to be premium neutral at inception and has a forward risk weight of 85%. P/L since inception 5.7 bp.
