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Analysts at Danske Bank explain that the relatively upbeat rhetoric from Fed Chair Jerome Powell last night pushed short-term yields higher and the market is now pricing in a September hike by close to a 90% probability.

Key Quotes

“The curve 2Y10Y flatten further to just 24bps. Powell was asked about the curve flattening, but he gave no firm answer if this is a major concern for the Fed. Noteworthy, the 10Y yield hardly moved underlining that the level seems to be locked in here slightly below 3%. With continued low inflation pressure and the Fed on course for two more rate hikes this year, we should expect the flattening to continue unabated over the summer.”