Global Macro Strategy - Views and Trade Ideas: The Messi Theory of Interest Rates

First-page research excerpt

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31 Jul 2026 10:24:51 ET │ 24 pages

Global Macro Strategy - Views and

Trade Ideas

The Messi Theory of Interest Rates

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CITI'S TAKE

If Mervyn King gave us the ‘Maradona Theory of Interest Rates’ to describe

active forward guidance, Kevin Warsh is giving us the ‘Messi Theory of

Interest Rates’ for no guidance. Messi has spent much of his career walking,

watching the game evolve around him, and only moving when necessary.

Warsh adopting this game plan could allow markets, rather than the Fed, to

tighten financial conditions. But it risks curve steepening, absent hawkish

guidance closer to Jackson Hole. We study cross-market implications of

twist steepening. Elsewhere we discuss EMFX carry (doubling our risk

despite JPY intervention), the SPX vs SOX debate (we stay bullish US

equities), all things Japan macro (still paid 1y OIS), tariffs news (add CAD

funding to our EMFX carry basket) and the BoE.

The Messi Theory of Interest Rates — Quietly waiting, observing and only acting

when necessary seems more Messi than Maradona. Market pricing of hawkish

credibility through the FOMC meeting suggests more guidance around Jackson Hole

is needed. In the meantime, trimming hawkish tails is good for carry, short USD and

twist steepening in the UST curve. We explore these themes below.

USTs twist steepening: rare, but USD bearish, positive for cyclicals — We look at

cross-asset performance across different USTs steepening regimes. Twist

steepening, which can also be interpreted as rising term premium, coincides with

USD lower. EMFX does well, together with EUR and high beta G10. Cross-asset,

cyclicals do well: copper and equities, as well as gold.

Carry’s ‘safe-haven’ outperformance continues despite intervention risks — Both

EMFX and G10 carry have extended their gains, supported by contained cross-asset

volatility and a unique CTOT flavour. While we think a sharp USDJPY sell-off could

generate spillovers, the resilience of EMFX carry’s long side and our diversified

funding that avoids Asian currencies such as JPY, leave us constructive in the trade.

We double our risk in the trade, and swap USD + EUR funding for CAD + CHF.

Adam Pickett AC

Dirk Willer AC

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