We continue to see further upside for 10Y German Bund yields on a 12-month horizon but we expect no major changes in 2017. This is also the case for Swedish, Danish and Norwegian yields. Range trading for the rest of 2017 is our call.
In general, we do not expect the market to price in an ECB tapering premium before 2018, as continued low inflation and a slightly less strong growth outlook have removed the need for tighter ECB monetary policy for now.
In the US market, the Fed came out slightly on the hawkish side when it hiked the Fed Funds rate by 25bp to 1.25%, despite recent low inflation prints. It seems that the Fed is focused primarily on the labour market and unemployment rate and less on actual inflation. Therefore, we still believe the Fed will hike one more time this year. We expect two hikes next year but think risks are skewed towards the Fed pausing its hiking cycle.
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