US yields expected to move higher - Danske Bank

Analysts at Danske Bank, continue to see a case for higher US yields; however they lowered the forecast for the US 10-year to 3.15% (down from 3.50%) in 12M. 

Key Quotes: 

“Several FOMC members including the most important ones have indicated that while the base case remains further gradual rate hikes, the Fed can afford to be patient at the beginning of the year, as inflation pressure remains under control. This gives the Fed time to see whether the market turmoil and slower global growth are temporary or not. The Fed has also let the genie out the bottle by saying that it is also more flexible on the balance sheet reduction. As we believe US growth will remain above potential this year and as we expect a rebound in global growth in Q2, we also expect the Fed will continue hiking. Our base case is hikes in June and December, which would be the last hikes in this cycle. The timing is more difficult this year, as every meeting could be live, as chair Powell will host a press conference after every meeting starting from the January meeting.”

“We still see a case for higher 2Y yields, as we continue to expect hikes, contrary to market pricing. In respect of the long end ,we assume an effect on the yield level from the more expansive US fiscal policy, which has boosted US bond supply.”

“We now expect 10Y US treasury yields to reach 3.15% on a 12M horizon (3.50% previously).”