Bonds: Long yields to peak in three months - Danske Bank

According to analysts from Danske Bank, bond yield in Europe and in the US will top in 2022 and decline slightly in 2023. They expect long yields to continue rising over the next three months as amid high inflation, central bank tightening and concern about a growing government bond supply increases.

Key Quotes: 

“10Y Bund yields are now trading around 2.1% compared with -0.18% at the start of 2022. During the same period, 10Y US Treasury yields have risen from 1.5% to around 3.85%.”

“Overall, we now expect 10Y US Treasury yields to rise by around 25bp to 4.05% in the course of the next 3 months. We expect 10Y Bund yields to increase to 2.35% on a 3-month horizon. That equates to a EUR 10Y swap rate of 3.20%.”

“Our baseline scenario is a recession in both Europe and the US. Hence, with central banks likely bringing forward rate hikes to H2 22, we expect markets to increasingly price inflation to come under control. Lower commodity prices point in the same direction. We therefore continue to see yields peaking in 2022 and declining slightly in 2023.”