Looking Ahead at What We Can Expect
The MUFG U.S. Macro Strategy team is dedicated to formulating U.S. Fixed Income views, market strategy thought leadership, and actionable trade ideas for our institutional clients. Headed by George Goncalves, an industry veteran with more than 20 years of sell-side and buy-side experience, the team focuses on rates, MBS, credit, the Fed/global central bank policy, U.S. dollar funding dynamics and all things macro-related.
For more information, please contact us:
Head of U.S. Macro Strategy
New York, NY
Latest Macro Musings
It’s no secret that each business cycle in the US has been aided by ongoing declines in long-term interest rates, where the Fed would cut rates. This pattern finally broke when rates went beyond their prior peaks.
For example, the 10-year interest rate has clearly broken the multi-decade downward trend that rates have been in since the 1980s. In 2022 we have seen 2 consecutive quarters where the 10yr rate has been above the prior high trend of 2 standard deviations. What is even more impressive is that currently the 10yr rate level is resulting in nearly a 4 standard deviation move beyond the mean of the trend-line.
So, is a multi-decade bear market ahead?
It’s unclear if a proper sustainable bear market can persistent given how the US is leveraged to low rates.
What is true is that rates were unnaturally low for too long and the Fed is in the process of overshooting rate levels to ensure they help steer inflation lower. Regardless of what level the Fed eventually ends the hiking cycle, we are skeptical they will be able to maintain high rates for longer before something breaks and/or the economy relents. Net, in our view we will likely see a sideways trading range versus an ongoing bear market and that as rates continue to grind higher value is being created in US bonds.
No signs of a mad dash to cash, yet…
Quantitative tightening has officially started on June 1st and the Fed is on track for further supersized rate hikes of 50bps. This new era of less Fed liquidity for markets has resulted in waves of broader financial conditions tightening. However, we have yet to see the mad dash to cash like we’ve seen in the past. In the 2000-2 & 2008-9 bear runs, the SP500 index suffered multi-trillion-dollar drawdown, it led to some of that cash being placed in money market funds. Adding complexity now is the lack of cash equivalent assets and the commensurate large balances of money market fund cash already at the Fed’s reverse repo program. Further financial conditions tightening may lead to stressing the money markets ahead.
Quantitative tightening to show markets are hooked on liquidity
The Fed’s support for markets has resulted in QE narratives driving market dynamics, at times more so than valuation analysis and economic fundamentals. One doesn’t need to be reminded that nonstop Fed liquidity has helped promote memes like T.I.N.A. (there is no alternative) and F.O.M.O. (fear of missing out) dominating sentiment. With the convincingly hawkish Fed embarking on quantitative tightening, the tide of central bank liquidity is set to go back out to sea.
In our opinion the double-tightening of QT and frontloaded large Fed hikes will tighten financial conditions in a material way in the 2nd half and exacerbate the economic slowdown that lies ahead.
Our approach to analysis
Our U.S. macro strategy team’s four-pillar approach uses analytic tools and various databases to pinpoint what will motivate investors to reallocate assets, or to deploy new or different trading strategies. These techniques, along with historical market perspective, give a complete macroeconomic picture for our coverage teams and SMEs, and for our clients.
Team Leader Bio
Head of U.S. Macro Strategy
New York, NY
The head of our U.S. Macro Strategy team – George Goncalves – is an industry veteran with more than 20 years on the sell-side and buy-side. George joined MUFG in April 2021 as head of U.S. Macro Strategy with a mandate to formulate U.S. Fixed Income views, drive market strategy thought leadership, and actionable trade ideas for clients. He focuses on rates, MBS, credit, the Fed/global central bank policy, U.S. dollar funding dynamics and all things macro-related.
George spent nearly a decade at Nomura Securities, first as the chief U.S. Rates Strategist and later as the Head of U.S. Fixed Income Strategy. Over his tenure at Nomura, he oversaw teams of analysts covering U.S. rates, U.S. credit and emerging market rates.
Prior to that, George was the Head of Fixed Income Strategy at Cantor Fitzgerald and a senior research analyst at both Morgan Stanley and Bank of America. He started his career in the Fixed Income markets on the buy side at the formerly known Merrill Lynch Asset Management division in institutional separate accounts, analyzing and co-managing portfolios of Treasuries, repo, short-term credit and MBS as an assistant portfolio management analyst.
Earlier in his career, George was voted one of the top 20 rising stars in Fixed Income by the publication “Institutional Investor” in 2007. And throughout his career he has been an active guest on Bloomberg TV and CNBC as well as quoted many times over in the financial press.
Professionally he has interacted with many debt issuers and has established a wide network of institutional investors from FX reserve managers, Bank Treasurers, real money and macro hedge funds.
George received his joint degree in Finance/Economics and Political Science from Rutgers University’s School of Management.