Countdown to Tapering

Key Points

Real yield jumped across the curve, UST curve steepening likely to be driven by higher real yields and term premium, leading to potentially steeper credit curves and hurting total return of duration products

Friday’s NFPs showed a consistently tight labour market, giving a green light to the March rate lift-off scenario

Economic fundamentals remain solid and supply chain bottlenecks start to ease, we are far from turning bearish in the credit context despite tightening financial conditions – but recommend staying close to home

Valuations on the move due to Christmas rally and new year macro vol, short -to medium-term structures with decent risk premium remain our top conviction

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