Analysts at Danske Bank, expect expect a steeper EUR yield curve on a 12M horizon and forecast that the forecast that 10Y Germany will rise to 0.9% in that period.
Key Quotes:
“Economic momentum in the euro area has abated due to headwinds from the external side and political risks around Italy coming back into focus. With the EU-US trade spat put on hold for now, we see scope for business confidence to recover somewhat in Q4 and still look for robust growth above potential of 2.0% in 2018 and 1.7% in 2019.”
“Despite the ECB’s new-found optimism regarding the inflation outlook, uncertainty persists on the timing and degree of pass-through from higher wages to core inflation. We expect core inflation to rise only gradually throughout 2018, and also 2019, in light of lingering downside risks to growth. We foresee the first ECB hike of 20bp only in December 2019 (broadly in line with market pricing).”
“We still expect a steeper EUR yield curve on a 12M horizon. The ECB still maintains a relatively tight grip on the short end of the curve. However, this is not the case for the 10Y segment of the curve, which we expect to be pushed higher by rising US yields, the end of ECB QE from the ECB and the pricing of rate hikes in 2019-20. That said, the demand for Germany is expected to stay. Overall, we forecast that 10Y Germany will rise to 0.9% on a 12M horizon. If the global trade dispute evolves further, it could weigh on risk sentiment and keep yields down.”
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