The ECB announced a large easing package at its March monetary policy meeting including additional rate cuts, higher monthly QE purchases for EUR60bn to EUR80bn, an inclusion of corporate bonds into the QE programme and a new series of TLTRO loans, which can have an interest rate as low as the deposit rate (currently -40bp).
The new easing measures from the ECB mean that any significant rise in EUR yields in the short term now looks quite unlikely and further downward pressure over the next couple of months should certainly not be ruled out. However, we still see modest upward pressure on a six- to 12-month horizon, as we still expect upward pressure on the long end of US yields later in 2016.
The updated projections from the Fed for the important median 'dot' for this year was lowered to signalling two hikes (down from four) as the Fed thinks that 'global economic and financial developments continue to pose risks'. The lower dot was a fairly strong signal that the Fed is unlikely to raise the Fed funds target rate by much this year, reflecting a somewhat slower projected path for global growth and tighter credit conditions.
We expect a mild downward pressure on global rates and yields this spring. However, looking six to twelve months ahead, the pressure from further Fed rate hikes is expected to weigh on the US treasury market and in the long end it will tend to push European yields slightly higher.
We do not expect more rate cuts in Sweden but we do expect another expansion of the QE programme in April. In Norway, the low oil price triggered a new rate cut in March and another rate cut in June is now expected.
Given that the ECB is now on hold, we look for an unchanged Danish deposit rate at -0.65% for the next twelve months.
To read the entire report Please click on the pdf File Below