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1. 2Y UST – Macro Says Yields Are Too High

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Spot has run 18bps beyond macro fair value. Energy is the culprit, but the dual mandate may be the cure.

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On the eve of conflict in Iran, 2y UST yields fell to 3.38%, their lowest in almost 4 years. Four weeks later they’ve re-priced 50bp higher.

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Qi’s model value for 2s has also risen in that time, but only by 20bp.  Crude oil is the biggest positive driver along with rate volatility & spreads. But other factors - notably weaker tracking GDP - have offset.

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The result is macro fair value sits at 3.69%. That means spot has moved ~18bp further & faster than macro conditions justify. That’s a +1.3σ Fair Value Gap.

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That would be sufficient to trigger a bullish signal but the caveat is model confidence. It’s rising but, at 40%, still sits well below our threshold for a macro regime.

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So no official signal but, for contrarians who feel a Warsh Fed could prioritise the growth aspect of the dual mandate, a potential call to arms.

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Continue reading our analysis on the other headlines by downloading the PDF below

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