Seven reasons why yields are higher
|Since late August, global and European rates have risen markedly. While it is difficult to pinpoint a single trigger, a combination of factors ranging from less geopolitical risks to central banks on hold has contributed to the perfect storm for global bond markets. In this research note we present seven drivers behind the recent fixed income sell-off.
Looking ahead, we see near-term negative economic momentum being counterweighted by the more positive risk sentiment prevailing in global financial markets. Hence, the risk of a 100bp correction similar to the one seen in the spring of 2015 should not be neglected. However, if we were to see the same correction, we are less than half-way in the current correction at the long end.
That said, we stick to the overall view presented in Yield Outlook: Downside to yields remains despite better risk appetite that we published on 16 October. Hence, we keep the view that weakness in global data, low inflation expectations, more Fed cuts and ECB QE will keep yields low. We have a -0.60% 3M target for 10Y bund yields.
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