International rates
The Fed is still expected to hike in April 2015. With growth and inflation firming and markets expecting a relatively shallow hiking cycle, there is room for higher US rates.
The ECB will not cut further, but the central bank is interested in a sizeable increase in the balance sheet, which, looking ahead implies a reasonable probability that a larger purchase programme involving sovereign bonds will be launched too.
We see rather limited upside risks to EUR rates for the entire forecast horizon. Only for the very long-end segments are forecasts above forward markets.
The forecasts for US rates are above forward markets on all segments of the curves. Consequently, we believe that the USD/EUR rate spread, despite record high levels, will widen a bit further.
The UK will be the first big central bank to tighten monetary policy. A first hike is forecasted in January 2015. Rates will move higher in the coming months.
Scandi rates
We believe that Danmarks Nationalbank will make FX intervention purchases and lower the CD rate by 10bp to minus 0.15% within the coming three months. This should support a gradual tightening of swap spreads versus EUR.
After the 50bp July rate cut we expect no more support from the Riksbank unless the economic environment deteriorates significantly.
We still do not expect any rate cuts in Norway, but a dovish stance by Norges Bank will limit upside for yields.
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