Over the past month, we have seen renewed upward pressure on both European and US rates and yields. Ten-year German Bund yields have moved from 0.30% to 0.55% currently and 10Y Treasury yields have moved some 20bp higher
We look at the factors that have pushed yields and rates higher.
Following the higher-than-expected CPI inflation print in December and hawkish comments from New York Fed President William C. Dudley last week changed our Fed call and we now expect the Fed to hike at the March meeting and to hike a total of three times in 2018.
Overall, we now pencil in somewhat higher 10Y EUR and USD rates and yields (Germany) on a 12M horizon. We now expect the 10Y EUR swap rate to rise to 1.45% on a 12M horizon, up from 1.20% previously. We forecast the 10Y USD swap rate will rise to 2.90%, up from 2.70% previously. We forecast 10Y Bund yields (Germany) and 10Y US Treasury yields at 1.0% and 2.90%, respectively, on a 12M horizon.
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