Analysts at Danske Bank, expect a flatter US yields curve and see the 10-year yields at 3.20% in 12 months.
Key Quotes:
“The Fed seems on track to deliver two more hikes this year (in September and December), which is also a consensus among analysts and priced by markets. Growth is strong, optimism is high, the unemployment rate is low, wage growth is increasing (although at a gradual pace) and core inflation is running near the 2% target. We also expect the Fed to continue hiking next year, as the expansion seems to continue but the committee is monitoring the yield curve, as many FOMC members are concerned about an inversion, which is considered a good recession indicator.”
“We still see a case for both higher 2Y and 10Y yields. The short-end is pushed higher as our Fed rate path is not priced in the money market curve. In respect of the long-end, a modest repricing of the US term premium is expected. We also assume an effect on the yield level from the more expansive US fiscal policy, which has boosted US bond supply.”
“We do not forecast an inversion of the 2Y10Y curve in treasuries on a 12M horizon, as we expect the market to price a very flat to inverted money market curve keeping 2Y yields in check after all.“
“We expect the 2Y 10Y curve will be very flat and we should expect a lively discussion whether this is a signal that a new US recession is getting closer or not. We expect 10Y US Treasury yields to reach 3.20% on a 12-month horizon (previously 3.3%). The curve 2Y10Y is expected to flatten to just 10bp in 2019 and a temporary inversion is certainly not unlikely.”
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