Recession fears topping the agenda but yields are still set to edge further up in the coming months. Economists at Danske Bank have now incorporated a peak in yields in three to six months’ time. But on a six to twelve-month horizon, they estimate markets will seriously begin to price short rates at close to peaking and the next movement to be downwards.

Long yields still likely to tick up again

“We consider the fall in yields over the past one and a half month, which has taken yields back to their April levels, to be an overreaction, given the high inflation. Hence, we see upside risks to long yields over the next three to six months.” 

“We continue to expect long yields to edge down slightly in 2023 as economic weakness materialises and inflationary pressures ease, which would likely see markets really starting to price lower short rates.”

“We now expect the 10Y US Treasury yield to rise by around 50bp to 3.25% in the coming three to six months. On a 12M horizon, we now expect the 10Y US yield to be 2.75%.”