In their yields outlook analysis, economists at Danske Bank point out that while a European Central Bank rate hike in 2022 is not their baseline scenario, they expect markets to increase price rate hikes in 2023 and 2024. They expect the 10Y US Treasury yields to hit 2.25% in 2022 and they see potential for the 10Y Bund yields to increase to 0.3% in 2022.
Key Quotes:
“As a consequence of our new forecast predicting four rate hikes from the Federal Reserve in 2022 and with QT likely to be launched in Q3 22, we have decided to raise our forecast for the 10Y US Treasury yield to 2.25% from 2.0% previously”.”
“Our overall expectation remains that the ECB will keep policy rates unchanged in 2022, though a rate hike late in the year is no longer unlikely. However, in the past month, the ECB has become much more likely to begin raising interest rates in 2023. Our assumption is that the market will continue to price rate hikes into the curve in 2023 and 2024, putting continued upward pressure on monetary policy-sensitive yields in the 3Y-5Y segment. We now expect the 10Y German government bond yield to increase to 0.3% in 2022 compared to 0.2% earlier.”
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