Any significant rise in global rates and yields over the next three months still looks unlikely, in our view, given the latest easing measures from the ECB, soft rhetoric from BoJ, a Fed not likely to hike at the June meeting and still a benign inflation outlook.
However, the resumption of Fed rate hikes in September is expected to weigh on the US treasury market and it will also tend to push 10Y European yields higher on a six to twelve months horizon.
Furthermore, if the higher oil price feeds into higher inflation expectations European 10Y yields could also move higher than we forecast.
Over the past month we have seen a lot of ultra-long government bond issuance. France, Belgium, Spain and Ireland have all issued 50Y bonds and Italy may be next in line. Ultra-long bonds add a lot of 'interest rate risk' to the market and we have already seen 30Y yields in the periphery moving higher partly due to these long bonds.
In Scandinavia the currencies are still pivotal for the central banks. Hence, the risk is still tilted towards more easing in Sweden, Norway and Denmark.
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