03.23.2026
POSITIONING THROUGH THE ENERGY STORM
Remaining NEUTRAL on USTs tactically and recommending adding exposure at 4.30–4.40%.
We remain NEUTRAL on USTs tactically and recommend adding exposure at 4.30–4.40%. In the near term, risks to yields are balanced as follows:
To the upside:
1) Middle East instability continues.
2) US macro fundamentals are at odds with levels reached before the war.
To the downside:
1) Positioning is generally short, especially at the short end.
2) The Fed’s pricing has greatly rebalanced, and it is now broadly in line with the Fed’s dots.
3) Trump’s reaction to the Supreme Court ruling on IEEPA tariffs reduces near-term fiscal deterioration risks.
Meanwhile, we keep the bar to turn SHORT at 3.75%, but place it under review, with risks tilted to the upside.
Strategically, we remain NEUTRAL but remove our negative outlook. Concerns about the Fed’s independence and institutional checks have eased, the administration is likely to avoid a cliff in tariff revenues when the Section 122 tariffs expire in July, and the probability of additional fiscal easing has declined following weaker political support.
On Bunds, we remain LONG tactically. We do not expect yields to increase much further from here for the following reasons: 1) Unless the conflict persists over the medium term (not our baseline), we do not expect the energy shock to translate into higher core inflation. 2) Current ECB pricing (2 rates hikes by year-end) seems overly aggressive. 3) Unlike the US, higher energy prices in the EA primarily represent a negative terms-of-trade shock, which should ultimately weigh more on growth than on core inflation, but investors have not priced in any negative effect on growth so far.
We continue to recommend extending exposure at 3.00-3.10% to take advantage of the current, misplaced, market adagio that seems to be taking for granted that the ECB will raise rates. We leave the bar to turn NEUTRAL at 2.45%.
Strategically, we stay NEUTRAL. If the conflict were to become prolonged, we would turn more constructive as a stagflationary scenario could eventually push long-term yields lower.
On BTPs, we remain LONG tactically. We raise the level to add exposure to 3.85-3.90% (from 3.65–3.75%) and the bar to turn NEUTRAL to 3.20% (from 3.10%).
Strategically, we remain NEUTRAL at this stage. In the event of a prolonged conflict, we would turn more negative strategically, as BTPs would likely underperform core bonds.
Chiara Cremonesi
Senior Rates Strategist
Investment Research
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