Eurozone Indicators Signal Improvement For 2013

During the past month, global economic data surprised positively. Economic indicators for the eurozone signal a continued improvement for the remainder of 2013 and going into 2014. In the US, we expect the recovery to continue to materialise as well going into 2014.

The improved outlook has continued to support risk appetite and pushed bond yields to new highs for the current cycle. Money market curves have steepened, as expectations of rate hikes have come forward.

Meanwhile, the ECB has continued to restate its dovish stance, although without being too explicit about the commitment of forward guidance in terms of economic thresholds. The central bank has said it will not allow a decline in excess liquidity to push up rates in an attempt to anchor short-end rates from unwarranted increases.

International rates
We expect to see some consolidation in the coming months as Fed tapering and a positive growth scenario is already priced in. That said, we have lifted our long-end forecasts to take account of the improving outlook.

The potential for higher long-end rates is biggest in Europe, where the rates are still at low levels in an historical context. In the US, the long end is close to fair levels, and we only expect moderate increases in line with the forward markets.

In the EUR markets we expect the short end of the curve to remain anchored, as the central bank is communicating low rates for a prolonged period. The forecasts for tenors sub 5Y are slightly below the forward markets, while the forecasts are above forwards for tenors of 10Y and higher on a 12M time-horizon.

Scandi rates
As we expect a continued normalisation of EUR money market rates, we expect Danmarks Nationalbank to raise interest rates by 10bp twice in a 6-12M month horizon, which would leave the lending rate at 0.40%. We expect Danish swap rates to track European swap rates.

The Riksbank's recent policy announcement (September) did not bring about any changes of relevance compared with the July announcement. We expect the repo rate to be on hold until late 2014. A full 25bp rate hike is priced in by mid-2014.

In Norway, we do not believe Norges Bank will signal that a rate increase is likely before mid-2015.

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