Following Chair Powell’s forward guidance may leave you holding the bag on big-time bond valuation losses?: The MUFG Global Markets Podcast

Nearly a year ago, MUFG U.S. Rates Strategist John Herrmann’s models initiated a 2s-30s Treasury yield curve bear steepener investment stance, at +108.0 bps on April 15. Nearly a year later, the 2s-30s yield spread is +228.6 bps. This has been a spectacular move, but John does not believe that the steepening move is complete as Chair Powell and his Committee have yet to fully realize and anticipate a very strong economic recovery over the years 2021, 2022, and 2023.

Chair Powell has pledged that monetary policy is no longer to be conducted upon a forward looking basis – a reaction function that explicitly acknowledges the long and variable lead times between policy changes and economic activity. Rather, Chair Powell doubled down upon his claim that the Fed’s policy reaction function will be based upon realized outcomes to economic improvement over the current cycle. In this episode, John Herrmann argues to continue to take the opposite side of Chair Powell’s remarkably complacent view.  

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