We believe the recent fall in UST yields were more a result of index extension as well as asset rebalancing for Nov end. We also believe that US data next week might be strong enough for bond yields to again inch up towards their post Trump Nov highs. We are looking for a strong Nov NFP at 275k with upward revisions to Oct NFP to 75k from 12k. (NFP data due on 6th Dec). As we enter a new week, US economic data such as ISM services & NFP might show that US economy continues to be strong in both employment & macro-outlook. This might lead to repricing of short end wrt to the 60% cut still being priced in for the 18th Dec Fed meet. We also believe that with a terminal rate pricing of 3.75, a term premium of 50 bps & a fiscal deficit of 7% of GDP gives a fair value of 10yr UST around 4.4-4.5 at a very conservative level. Hence, we recommend to pay 5yr US SOFR which is a mix of our short end rate view and long end bearish outlook. Summary: Pay 5-year US SOFR at CMP of 3.75, TP of 4.00 & SL at 3.54.
