By Matthew Raskin and Steven Zeng, DB Rates Strategists
Market pricing for the fed funds rate path implies a roughly 70% probability of softlanding vs. recession. Given our view that recession is more likely than not, this translates into an attractive payoff to front-end receivers. Returns to forward curve steepeners during Fed pauses hinge on the extent to which the Fed cuts more than ex-ante priced. Given this, the payoff to forward steepeners today also looks favorable, even more so due to factors boosting term premia.
