• We expect market attention in the coming months to remain focused on 1) whether the spike in inflation is in fact temporary, 2) whether economies and GDP growth have peaked and 3) whether central banks will seriously begin to signal tapering of bond purchases in 2022.
  • However, the economic outlook has become muddier, and recent developments in China could potentially send shockwaves through global financial markets and push long yields down in the coming months.
  • Nevertheless, in our view, the combination of still high ongoing inflation, the continuing pick-up in the US economy and a tapering decision by the US central bank (the Fed) is likely to put upward pressure on long US yields, in particular, in the next three months, leading us to expect US 10Y Treasury yields to hit 1.5% by the end of the year.
  • We expect an initial US rate hike to be on the cards late 2022 or so and the upward pressure on yields to remain in place. Hence, we expect US 10Y yields to hit 2% in 12 months' time.
  • Higher US yields should tend to push European yields higher, and we are maintaining our 12-month forecast of 0.1% for German 10Y yields.

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