10Y US Treasury yield to reach 3% after last week's US CPI data

Jens Peter Sørensen Danske Bank A/S

Market movers today

In Germany, we get the ZEW expectations for February, which should show a small fall back compared with January.
In the Eurozone, the preliminary consumer expectations for February are also set to be released. After climbing to near record high in January, market expects the indicator to drop back a little in February.
In Denmark, we get consumer confidence data for February. The indicator bounced back in January after having trended down since summer 2017, when it hit a two-year high. We expect consumers to be more optimistic in February and so expect a further increase to 8.5.
In Sweden we get the January inflation data. We expect CPIF m/m change at -0.7% (same as market). The CPIF y/y is expected to be 1.9%, which is the same as both consensus and the Riksbank's updated projection. Focus will be on the service inflation. In fact, Riksbank was, in our view, close to shifting the rate path, i.e. postponing the first rate hike. A lower-than-expected inflation reading today, driven by lower service inflation, could move the market a bit, sending interest rates in shorter maturities lower.

Selected market news

It has been a mixed session in the Asian equity markets this morning with most markets down. Furthermore, we have seen a modest rise in US treasury yields in Asian trading together with a slightly stronger dollar versus the EUR and JPY.

There is plenty of focus on the 10Y US Treasury yield to reach 3% after last week's US CPI data. This could happen already this week as the US Treasury Department will be selling some USD 100bn in 2Y, 5Y and 7Y US Treasury bonds. However, we expect to see decent demand at the auctions given the rise in yields, which has the bonds more attractive for investors.

In Germany, the SPD will begin the membership ballot on whether to join the CDU in a new coalition government. Spain is taking advantage of strong demand for its government bonds and plans to sell 30Y government bonds through a syndicated deal expected today.

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Author

Jens Peter Sørensen

Danske Bank A/S

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