Overall, we expect German yields to stabilise around the current level after the recent rise. However, we continue to see 10Y bund yields higher on a six to 12 month horizon, as we expect the cyclical outlook to improve in the second part of 2020 and as the term-premium moves higher. We expect 10Y Bund and 10Y Treasury yields to hit 0.1% and 2.1%, respectively, in H2 20. The risk is now seen on the upside compared with our forecasts.

On the other hand, we see a small probability that 10Y interest rates will hit new bottom levels during 2020. In our view, this will require the ECB to start reducing interest rates again. We see this possibility as modest given the opposition already today from a number of ECB members in relation to the current easy monetary policy.

But in the event of a recession in the global economy or in the euro area, the 10-year interest rate should be expected to fall to the levels we saw back in August and September.

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