US Yields: Only modest upward pressure on the 10Y seen this year - Danske Bank

 In combination with 10Y yields of close to zero in both Japan and Germany, analysts from Danske Bank expect this to keep US yields low, with investors being pushed towards the US.

Key Quotes: 

“Earlier this year, we argued that rising US 10Y yields would push eurozone 10Y yields higher. However, there is now much to suggest that causality in 2019 would be the other way round. Uncertainty about the trade war between the US and China has caused the market to start pricing US rate cuts, although – given the strength of the US labour market – we do not envisage the Fed cutting rates. The market will likely disagree with us, though, and keep pushing rate cuts back in coming quarters without cuts ever actually materialising.”

“We expect the Fed to keep rates unchanged over the next 12 months. Markets, on the other hand, are pricing almost three 25bp rate cuts by the end of 2020. We expect only modest upward pressure on 10Y US yields this year, as low eurozone and Japanese yields, low inflation, rate cut expectations and concern about the trade war are putting a lid on long-term US yields.”

“The Fed is firmly on hold due to concern about lower global economic growth and still modest inflationary pressures in the US economy – notwithstanding continued GDP and job growth in the US.”