US and German yields to fall back - Danske Bank

According to analysts from Danske Bank, we are not heading for a period of rising yields and they expect long yields to fall back to August levels. 

Key Quotes: 

“We expect German yields to fall back to August levels and we maintain our call that the benchmark German bond yield is likely to drop to minus 0.70% within the next three months. The combination of a weakening economic cycle, monetary easing by the ECB – not least QE – and the ongoing struggle by investors to avoid negative yields points in that direction.”

“The US Federal Reserve has already cut rates and while Governor Powell was very cautious about promising a series of rate cuts, we now believe that we will see a series of US rate cuts and that the Fed funds rate will drop to 1% by March of next year.”

“Given our Fed call, we expect 10Y US Treasury yields to drop to 1.1% on a six-month horizon. That would help push down long-term European yields.”

“European yields in particular have been under heavy pressure due to the weak economic cycle and while we expect it to improve slightly over the next 12 months, yields are not likely to increase significantly and we definitely do not expect a change to an upward sloping trend in yields.”