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The 10yr US treasury yield has breached the important psychological level of 3% and has traded as high as 3.12% over the recent month, points out the research team at Nordea Markets.

Key Quotes

“Much is needed to divert the Fed from the current pace of one hike per quarter, we still judge that there is a scope for a running repricing of the USD curve. If the market pricing catches up on the current FOMC dot plot for 2018-2019,  the “fair value” of the 10yr treasury yield rises to 3.25%.  A level that is likely to be reached during the latter part of 2018.”

“Over the forecast horizon we continue to look for more flattening of the USD curve,  as the Fed will hike more over the course of 2018 and 2019 than what is currently priced in by the markets.  The recent signals that the Fed accepts some inflation overshooting should however contain the flattening pressure for now. We don’t think an inversion of the USD curve is around the corner, but it could become an increasingly hot topic as we approach the second half of 2019.”