HALISTER1: UST 10Y to End 2017 at 2.7%; Fed, ECB to Stay Behind Curve: CA

UST 10Y to End 2017 at 2.7%; Fed, ECB to Stay Behind Curve: CA

(Bloomberg) -- Central banks will stay behind the curve in 2017 as focus will turn to risk sentiment more than growth or inflation expectations, Credit Agricole strategists led by Mohit Kumar write in 2017 outlook.
  • Fed risk sentiment rooted in importance of wealth effects on consumer consumption; monetary policy transmission mechanism important for ECB
    • ECB can maintain QE policy through at least end-2017 without supply side constraints given decision to buy bonds below deposit rate floor
    • ECB expected to maintain easy money policy before starting to taper QE in 2018, which could drive 10Y bund yields to 1.20-1.25% by end-2018
  • UST 10Y to be near 2.70%, 10Y bunds at 0.80% by end-2017, but does not expect a sustained rise in yields
  • BOJ will be able to sustain current JGB purchasing pace in 2017; will need to maintain easy policy to reach inflation target
Alert: HALISTER1
Source: BFW (Bloomberg First Word)

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2539Z GR (European Central Bank)

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Mohit Kumar (Credit Agricole SA)

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