We see further upside for both 10Y Bund yields and 10Y US Treasury yields on a 6M to 12M horizon. We expect the market to price in an ECB tapering premium and the focus on 'reflation' to continue and believe the market will start to discount US rate hikes being stepped up in 2018 as Donald Trump steps up fiscal policy stimuli.
We continue to expect a steeper EUR yield curve 2Y10Y in 2017. The ECB still has a tight grip on the short-end of the curve, which is not the case for the 10Y segment of the curve. We expect 10Y Bund yields to rise to 0.90% and 10Y US Treasury yields to 3.0%.
Reasons we expect both 10Y Bund and 10Y US Treasury yields to trade more or less flat on a 3M horizon include market positioning, a market already expecting strong numbers (surprise index), ECB QE and our view that the tapering discussion in Europe is not an H1 theme, together with our view that the next Fed hike will not happen before June.
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