Yield Outlook: Higher US yields to set the global 'yield-agenda'
The US bond market has been setting the direction in global bond markets over the past two weeks. Since the beginning of September, 10Y US Treasury yields have jumped more than 30bp to currently 3.16%. The move higher in yields has been especially noteworthy given the poor performance for global equity markets in the same period.
On 14 October we published FI Research: Next stop is 3.50% for 10Y US treasury yields where we looked at the drivers for US yields in particular over the coming three to six months.
We argue that even after the recent move higher in US yields we still have upside potential and accordingly we have changed our forecast for 10Y US yields, which we now expect to hit 3.30% (3.05%), 3.50% (3.20%) and 3.50% (3.50%) on a 3, 6 and 12 month horizon (old forecasts in brackets).
We continue to see modest upward pressure on yields and rates in Europe in 2019. The first ECB rate hike is moving closer and the ECB QE programme is widely expected to have ended. The latter has created some concerns that we could see a jump in yields such as we saw in the US in 2013, when the Federal Reserve scaled back on bond purchases (tapering). We see this risk as relatively small.
Our new yield forecast for 10Y US treasury yields will also if correct, tend to push German and Scandinavian longer-dated yields higher. We have consequently revised our 12M forecast for German 10Y yields higher to 0.90% from 0.8% previously.
In Sweden our updated yield forecast now includes a second rate hike in July 2019 on top of the one we expect in December this year.
Author
Danske Research Team
Danske Bank A/S
Research is part of Danske Bank Markets and operate as Danske Bank's research department. The department monitors financial markets and economic trends of relevance to Danske Bank Markets and its clients.
