We expect weakening in the U.S. labor market this year, with underlying weakness that will play out. Core inflation has been well-behaved and should decline toward year-end, within eyesight of Fed's target.

Take away the oil shock. If we get weaker growth coupled with inflation returning to target, we are in the camp that the Fed will be easing this year. Next week we'll hear from Kevin Warsh; we think he'll signal the Fed will deliver a couple of cuts by year-end if things play out as expected.

The message would be a desire for a smaller balance sheet focused on Treasuries, but with recognition it can't go down much near-term without changes to other policies like repo facilities and bank regulations.

Expects Fed will work with Treasury to affect that, so it's more a desire message than a practical near-term change.

The curve can steepen more from here. As easing expectations come back in, it should help the 2-5 year point.

But it won't be the dramatic steepening seen in recent years; more a steepening bias but rangebound.