Review
Economic data has softened in recent months and the oil price has continued to slide. These factors have been supportive for core bond markets.
In the midst of this, the ECB and Bank of Japan (BoJ) have strengthened their commitments to further balance sheet expansions, while the Fed has brought its purchases to an end.
International rates
Even as the Fed moves towards a first rate hike, which we expect to happen in June 2015, the average monetary stance at the Fed, BoJ and ECB is still being eased.
Next year, we expect the ECB to expand the list of assets it will buy in order to increase its credibility regarding the expected balance sheet expansion.
Looking into 2015, global liquidity will become even more abundant due to BoJ and ECB policies and we expect this to exert further downward pressure on core rates.
Further, it should limit the upside potential for US rates despite the Fed starting to hike. Hence, we mainly see upside potential for US rates in 2015 in the 0-5Y segment.
The latest dovish stance from the Bank of England suggests that it is not likely it will raise rates before H2 15. We have moved our rate hike expectation into Q3 15.
Scandi rates
We stick to our view that DN will deliver a unilateral 10bp cut in the rate on certificates of deposits (CD) to minus 0.15% before year-end. We see mainly downside risk for Danish rates.
Given our view on Swedish inflation, we expect the Riksbank's next step to be forward guidance in the sense that the repo rate forecast is likely to be shifted outwards. We see a rate hike at end-2016 at the earliest.
In Norway, we continue to expect flattening of the curve given our view that Norge's Bank is done cutting and long-end rates are capped.
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