The Federal Reserve will probably have enacted rate lift-off twelve months from now according to analysts at Danske Bank. They expect to see continuing upward pressure on long-term yields. They see the 10Y US Treasury yields reaching 2% on a twelve-month horizon.

Key Quotes: 

“We now expect two rate hikes, against previously only one, from the US Federal Reserve in 2022 (September and December).”

“We still do not expect the ECB to hike rates for the next few years. However, as inflation is proving to be less transitory than previously expected, and given the latest signals from the BoE, markets look likely to continue to price rate hikes into the yield curve. This has led to upward pressure on 2Y-5Y EUR swap rates.”

“We expect the market focus for the remainder of the year to shift between the factors supporting higher long yields and those pointing to lower yields. In other words, the outlook has remained quite muddy. Looking 6 and 12 months ahead, we still expect the global economy, and particularly the US economy, to continue to grow. And with an initial rate hike having moved closer and a reduced volume of bond buybacks from both the ECB and the Fed, this should tend to push long yields higher in both the US and Europe. We continue to expect US 10Y Treasury yields to rise to 2% on a 12M horizon, while 10Y Bund yields look set to increase to 0.25%.”