Taking stock of the U.S. economy amidst accelerating community spread of COVID-19, and did you miss your entry point for the yield curve steepener?: The MUFG Global Markets Podcast

With the 4th quarter likely beginning on such a strong trajectory, in terms of income growth and personal and business spending growth, there is a risk that real GDP only declined near -1.90% YoY in all of 2020 – significantly better than the consensus estimate of -3.30% and the Federal Reserve’s projection of -3.70%! Over the course of 2021, John Herrmann forecasts that the level of real GDP will be fully recovered by Autumn 2021, and the U3 unemployment rate fully recovered by Q1-2022. John raises the question: “For how much longer can the FOMC maintain its monthly asset purchase program of $120.0 billion per month? For how much longer will the FOMC be able to convince market participants that front-end interest rates will be anchored at zero lower bound?” While John has concerns over a severe season of community spread of COVID-19 over the coming few months, the “safe place to hide” may be in the 2s-30s yield curve steepener– especially should there be any pull-back over the coming month or two.

In this week’s podcast, MUFG U.S. Rates Strategist, John Herrmann, takes us through the October monthly employment report and all of the constructive signals he sees. As a standout indicator, his “proxy” for personal income growth of private-sector production and non-supervisory workers surged +1.36% month-on-month. That gain in income points to risk of another remarkably strong retail sales spending report next week. He also explores the implications of those forecasts on his investment thesis, the 2s-30s yield curve steepener.

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