BNP Paribas: The Federal Reserve’s terminal interest rate is expected to be 2.75%, and it is optimistic about curve steepening transactions

A strategist at BNP Paribas said the swaps market was too optimistic about expectations that the Fed would stop cutting interest rates when the policy rate fell to about 3.5%. The strategist is bullish on curve-steepening trades and mid-curve Treasuries. Calvin Tse, head of macro strategy for the Americas at BNP Paribas, said in an interview with Bloomberg TV on Tuesday that the best opportunity on the curve lies not in pricing in 2024, but in the market's expectations for terminal interest rates, in other words, the final rate cut. The market expects the Fed to stop near 3.5%, which suggests that interest rate markets are looking for a soft landing, and we expect the landing to be a little bumpier than the market expects. BNP Paribas expects the Fed's terminal interest rate to be at 2.75%. Tse said, "We like to build positions in the middle of the yield curve. We like to trade on curve steepening, looking for the 5-year period to outperform the 10-year period." (Golden Ten)