TD Lowers 2016 Year-End UST Yield Forecasts
(Bloomberg) -- TD lowered 2Y yield forecast to 1.25% from 1.40%, 5Y to 1.75% vs 2.00%, 10Y to 2.3% from 2.5% previous, and 30Y to 3.05% vs 3.20% amid “significant tightening in financial conditions” and slower expected pace of Fed hikes, strategists led by Priya Misra said in Feb. 12 note.
- Revised forecasts “remain well above spot and forward levels but below consensus expectations,” and “we believe that the Fed will continue to normalize rates once volatility subsides, but that demand from lower-yielding sovereign bond markets will continue to weigh on yields”
- TD expects 2 rate hikes this year (June and Dec.)
- German 10Y yield year-end forecast cut to 0.70% from 0.95%, and will likely fall “into negative territory in Q1”
- Although UST 10Y yield expected to rise vs spot and forward rates as market stabilizes, Fed hikes again, and UST selling by reserve managers, long end yields will likely be “anchored” as private foreign demand looks to switch out of lower-yielding global bonds
- UST 5/30 curve likely to remain flat vs. forwards amid low inflation risk and market pricing of Fed’s terminal rate remaining“extremely low” at ~2%
Alert:
HALISTER1Source: BFW (Bloomberg First Word)
People Priya Misra (TD Securities USA LLC)
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