Updated Interest Rate Forecast

At the beginning of the year, I had penciled ranges of:

US10s 1.5-3.0
US30s 2.0-3.5

Can10s 2.25-3.35
Can30s 2.95-3.95

With the high yields in Q1 and the low yields in H2

My low yields were framed in the context of the Japanese experience under ZIRP and QE and deflation, whereby the whole Japanese curve traded under 1% in 2003, and even before that in 1998 their 10s got to 0.8% and their 20s to 1.3%

Obviously I didn’t foresee US longs backing up 130 bps from their December low of 2.50 (I thought up to 100)

I’m sticking with my US 10s forecasted range, though my US longs ceiling needs raising to 3.70

And I’d stick with my low yields for Canada (though I think there’s a risk we go even lower --- US10s went to 2.05 in December; now that Canada is likely to also go to ZIRP and to QE, and given that I think Canadian GDP and other economic data will be at least as horrid as the US), but would drop my highs to 2.95 on 10s and 3.70 on longs (given that economic data has deteriorated even faster in Canada than I would have anticipated, increasingly the likelihood of Canadian QE)

As such, the relative duration bets I’d advocate, pending further consideration and debate, would be:

2.25 – 0.2 short
2.35 – 0.1
2.45 - neutral
2.55 +0.10
2.65 +0.20
2.75 +0.30
2.85 +0.40
2.95 +0.50 long