Investment Research — General Market Conditions
17 August 2016
Yield Forecast Update
Still some potential for higher yields next year
Global hunt for yield continues…
Any significant rise in global rates and yields over the next three to six months still looks
relatively unlikely, in our view. The ECB is buying EUR80bn of bonds every month and
we expect it to announce as early as next month that bond purchases will be prolonged for
another six months, so that they run until September 2017.
The Bank of Japan did not – somewhat surprisingly – step up its purchases of bonds at the
July monetary policy meeting and it did not cut rates further into negative territory but
with the latest appreciation of JPY more easing is on the cards in Japan. Hence, Japanese
investors will continue to face very low JGB yields, which will continue to push investors
abroad and help keep a solid lid on US yields especially, even in a situation where the Fed
restarts its rate-raising campaign.
The contagion to the US and European economy from Brexit has so far been modest but
the UK economy is in our view heading for recession in H2 16. The Bank of England has
already reacted to the bleak economic outlook and delivered a substantial easing package
but more is in store, in our view. Hence, we expect the strong summer downward pressure
on long UK yields and rates to continue in the autumn. It means that yet another ‘high
yielding’ bond market has disappeared for global fixed income investors – again a factor
that tends to push investors towards the ‘high’ US yields or the higher yields offered by,
for example, Swedish and Danish covered bonds. The ‘global hunt for yield’ is working
and it keeps a solid lid on long-dated yields.
…but the market is very complacent about Fed hikes and inflation
However, ‘the global hunt for yield’ does not mean that we cannot see yields moving
slightly higher next year as we expect. If we are correct that the Fed will resume its rateraising campaign in June next year, we could see upward pressure on US yields on a 12M
horizon. It should affect especially the short end of the US treasury market as the market
is not priced for a full hike before end-2017. Note also that the USD Libor fixings have
moved higher over the summer ahead of the US Money Market Reform that will come
into effect on 14 October.
Indeed, there is a risk that both we and the market are far too complacent about the risk of
US rate rises over the next 12 months. The slowdown seen in the US labour market in the
spring seems to have ended and plenty of jobs were created in June and July. Several
FOMC members have recently warned that a rate rise at the September meeting should
certainly not be ruled out. Furthermore, if we look at financial market expectations for
inflation, a very benign inflation outlook is priced in. However, considering the oil price
recovery from below USD30 a barrel in January to close to USD50 a barrel and the fall in
US unemployment, the market may have also become too complacent about the risk of
higher inflation going forward. If this is the case, it poses a risk to the upside for global
yields.
Quick links
Eurozone forecast
US forecast
UK forecast
Denmark forecast
Sweden forecast
Norway forecast
Forecast table
Policy rate outlook
Country
Spot
+3m
+6m
+12m
USD
EUR
GBP
DKK
0.50
0.00
0.25
0.05
0.50
0.00
0.10
0.05
0.50
0.00
0.10
0.05
0.75
0.00
0.10
0.05
SEK
NOK
-0.50
0.50
-0.50
0.25
-0.50
0.25
-0.50
0.25
Source: Danske Bank Markets
10-year bond yield outlook
Country
Spot
+3m
+6m
+12m
USD
GER
GBP
1.57
-0.05
0.57
1.60
-0.05
0.50
1.70
0.10
0.65
1.90
0.30
0.90
DKK
SEK
0.10
0.07
0.15
-0.10
0.20
0.00
0.30
0.10
NOK
1.08
1.10
1.20
1.40
Source: Danske Bank Markets
Editors:
Chief Analyst
Arne Lohmann Rasmussen
+45 45 12 85 32
[email protected]
All in all, we argue that one should be prepared for slightly higher 10Y yields on a
12M horizon, both in the US and in Europe.
Analyst
Mathias Røn Mogensen
+45 45 14 72 26
[email protected]
Important disclosures and certifications are contained from page 10 of this report.
www.danskeresearch.com
Yield Forecast Update
Contents and contributors
Eurozone ...................................................................................................................................................................................................................................................................... 3
Macro
Senior Analyst
Pernille B. Henneberg
+45 45 13 20 21
Interest rates
Chief Analyst
Arne Lohmann Rasmussen +45 45 12 85 32
[email protected]
[email protected]
US ...................................................................................................................................................................................................................................................................................... 4
Macro & Interest rates
Senior Analyst
Mikael Olai Milhøj
+45 45 12 76 07
Interest rates
Chief Analyst
Arne Lohmann Rasmussen +45 45 12 85 32
[email protected]
[email protected]
UK ...................................................................................................................................................................................................................................................................................... 5
Macro & Interest rates
Senior Analyst
Morten Helt
+45 45 12 85 18
[email protected]
Denmark ....................................................................................................................................................................................................................................................................... 6
Macro
Chief Economist
Las Olsen
Interest rates
Chief Analyst
Arne Lohmann Rasmussen +45 45 12 85 32
+45 45 12 85 36
[email protected]
[email protected]
Sweden .......................................................................................................................................................................................................................................................................... 7
Macro & Interest rates
Chief Analyst
Michael Boström
+46 (0)8-568 805 87
[email protected]
Senior Analyst
Michael Grahn
+46 (0)8-568 807 00
[email protected]
Senior Analyst
Marcus Söderberg
+46 (0)8-568 805 64
[email protected]
Senior Analyst
Carl Milton
+46 (0)8-568 805 98
[email protected]
Norway .......................................................................................................................................................................................................................................................................... 8
Macro & Interest rates
Chief Analyst
Jostein Tvedt
+47 23 13 91 84
[email protected]
Forecast table .......................................................................................................................................................................................................................................................... 9
2|
17 August 2016
www.danskeresearch.com
Yield Forecast Update
Eurozone forecast
Euro area GDP growth showed fairly solid GDP growth of 0.3% q/q in Q2 16, while the
unemployment rate in June remained at 10.1%, similar to the level in May. While the GDP
and unemployment figures both cover pre-Brexit vote periods, initial survey indicators
suggest fairly resilient economic conditions post the Brexit vote. However, we still have
observations for survey data for only one month and no hard data covering the period
beyond June. In our view, it remains early days since the Brexit vote and we are awaiting
more information to allow us to judge the impact on the euro area economy. Headline
inflation rose marginally in July to 0.2% y/y, from 0.1% y/y in June. Although the oil price
decreased in July, the base effect from 2015 and the increasing food prices pulled inflation
upwards. In the short term, we expect the oil price base effect to cause a sharp increase in
inflation. Even though inflation will temporarily close in on the ECB’s 2.0% target, we
expect the ECB to recognise that inflation is still not at a sustainable 2% level. In all, we
believe the ECB is too optimistic in its forecast of core inflation.
EUR Forecast summary
EUR
Spot
+3m
+6m
+12m
Money market
ECB
0,00
0,00
0,00
0,00
3M
-0,30
-0,30
-0,30
-0,30
2-year
-0,61
-0,62
-0,55
-0,55
5-year
-0,51
-0,50
-0,50
-0,45
10-year
-0,04
-0,05
0,10
0,30
2-year
-0,22
-0,22
-0,15
-0,15
5-year
-0,12
-0,10
-0,10
-0,05
10-year
0,32
0,35
0,50
0,70
German government bonds
Swaprates
Source: Danske Bank Markets
Based on the growth and inflation expectation above, we expect the ECB to announce further
easing in September and extend its QE purchases beyond March 2017, while our call is that
the QE programme will be boosted temporarily to EUR100bn for the rest of 2016. The
current easing measures from the ECB and our view that the ECB will prolong QE
purchases mean that any significant rise in EUR yields now looks quite unlikely and we
should not rule out further downward pressure over the next couple of months. Focus in the
European government is now on how the ECB handles an extension and expansion of the QE
programme without running into problems with the different rules. The issue is that there is
not enough German government paper to buy with the current rules. One solution would be to
remove the rule that the ECB cannot buy bonds below the deposit rate (currently at -0.40%)
or to allow more purchases of, for example, Italian bonds. If the ECB opts for the latter
solution, it should remove some of the downward pressure on German yields. A removal of
the -0.40% threshold could push short-dated bond yields lower.
EUR swap curve
1,0 %
0,8
0,6
0,4
0,2
0,0
-0,2 0
-0,4
bp 3
3
6
9 12 15 18 21 24 27
Ændring, bp (h-akse)
18-jul-16
Source: Danske Bank Markets
We still see modest upward pressure on 10Y yields on a 12M horizon, as we still expect
upward pressure on the long end of US yields in 2017. We still firmly believe that the ECB
will be able to keep 2Y and 5Y yields in check with QE purchases and a deposit rate at
-0.4%. Thus, on a 6M and 12M horizon, we still look for a modest steepening of the EUR
curve for 2Y10Y and 5Y10Y. Additionally, we expect 3M Euribor fixings to stay below zero
throughout the forecast horizon. Note we have seen no effect on Euribor fixings from the
higher USD Libor fixings.
3M Euribor
10Y EUR swap rates
Source: Macrobond, Danske Bank Markets
Source: Macrobond, Danske Bank Markets
3|
17 August 2016
www.danskeresearch.com
3
2
2
1
1
0
-1
-1
-2
17-aug-16
Yield Forecast Update
US forecast
Following the increased uncertainty since the UK Brexit vote, the Fed has pushed the next
hike further out. Fed members have increasingly highlighted a risk management approach in
which the Fed puts higher weight on the risk of hiking too early than too late. An increased
debate about a rethink of policy due to a lower neutral rate has also highlighted many Fed
members’ change in view towards a more dovish stance. We expect the Fed to be very
patient before raising rates and look for the next hike in June 2017 and the following one in
December 2017. However, markets have also adapted to a more dovish Fed stance and the
next hike is not priced fully until December 2017.
US growth has recovered in Q2 pulled by very robust private consumption. Looking forward,
we expect US growth to continue at cruising speed close to 2%. Downside risks to growth
have decreased somewhat as the result of the Brexit referendum seems to be having a limited
impact outside the UK but we still see the risks as mostly on the downside. The Fed’s preferred
measure of inflation core PCE is still subdued at 1.6%, below the Fed’s target of 2.0%. Lower
unemployment and a gradual increase in wage growth should gradually push up core inflation.
However, the Fed is likely to tolerate an overshoot, as some members have even talked about
raising the inflation target to allow for a bigger buffer when the next downturn hits.
The global hunt for yield is still keeping a lid on longer dated US treasury yields, which is
the only major market that offers a 10Y yield above 1.5%. Eventually, we believe the Fed
will resume its hiking cycle, causing US yields to trend higher. We expect the move higher
in US yields on a 12M horizon. Over the summer, we have seen a pronounced rise in USD
Libor rates. The main culprit is the US money-market reform (MMR) and the new
regulatory requirements that are due to come into effect on 14 October this year (see The US
Money Market Reform: The Scandi angle, 9 August). The MMR reform has resulted in large
flows in the US money market, where assets of more than USD500bn have left prime
money market funds that have to adopt the new requirements and moved into government
money-market funds, which are exempt. It is probably too early to call an end to the move
higher in USD Libor fixings and spill over to other markets as long as the outflow from
prime money-market funds continues. However, the speed should, in our view, moderate
now, as we have already seen a USD500bn flow out of a stock of around USD1,500bn.
USD Forecast summary
USD
Spot
FED
0,50
0,50
0,50
0,75
3M
0,80
0,76
0,75
0,99
2-year
0,75
+12m
0,75
0,80
1,20
5-year
1,16
1,15
1,30
1,60
10-year
1,57
1,60
1,70
1,90
2-year
0,98
0,95
0,95
1,35
5-year
1,17
1,15
1,30
1,65
10-year
1,43
1,50
1,60
1,85
Government bonds
Swap rates
Source: Danske Bank Markets
USD swap curve
2,0 %
bp 15
1,5
10
1,0
5
0,5
0
0,0
-5
0
3
6
9 12 15 18 21 24 27
Change,bp (rhs)
18-jul-16
Source: Danske Bank Markets
10Y USD swap rates
Source: Macrobond, Danske Bank Markets
Source: Macrobond, Danske Bank Markets
17 August 2016
+6m
Money market
3M USD Libor rates
4|
+3m
www.danskeresearch.com
17-aug-16
Yield Forecast Update
UK forecast
Post-Brexit data has been very weak, as consumer confidence, business confidence and
housing market expectations have declined. Most noticeably, the PMIs have fallen below
50, supporting our view that the UK is heading towards a recession in H2 16. The NIESR
GDP estimate for July suggests that the UK economy in the month post Brexit shrank by a
substantial 0.2%. Historically, the indicator has been a reliable indicator for economic
growth in the UK and it is therefore noteworthy that NIESR put a 50% probability of a
technical recession in the UK within 18 months.
As expected, the Bank of England (BoE) delivered a substantial easing package and
maintained a very dovish stance at the 4 August MPC meeting. The package included a
25bp Bank Rate cut to 0.25%, GBP70bn QE (GBP60bn government bond and GBP10bn
corporate bond purchases) and a new Term Funding Scheme (TFS).
In addition, the BoE maintained a very strong easing bias, saying that it can ‘act further
along each of the dimensions of the package’ but explicitly ruled out negative interest rates,
saying that the new lower bound is close to but above 0%. We expect BoE to cut the Bank
Rate by 15bp to 0.10% and to increase both the Asset Purchase Facility (APF) and the
Corporate Bond Purchase Scheme (CBPS) at the November meeting. A 15bp rate cut to
0.1% is already priced for November, while the Bank Rate is priced to fall to 0.05% in the
coming two years.
Yields on Gilts have fallen sharply on the back of the restart of BoE’s asset purchase
programme. The 2Y10Y, 5Y10Y and 10Y20Y yield curves have flattened significantly and
we expect the flattening pressure on the Gilt curve to remain intact in the coming months, as
in particular yields on the long end of the curve are likely to fall further. UK swap rates have
fallen sharply as well but especially in the long of the curve interest rate swaps have
underperformed relative to gilts. We have revised down our yield forecast significantly on
the back of the Brexit vote and not least the substantial monetary policy easing package. We
now forecast the five-year UK swap rate at 0.70% in 12M, while the 10Y swap rate is
expected to trade in the 0.70%-0.80% range in the coming six months before inching higher
to 1% in 12M. Our 1-6M yield forecasts are slightly below the forward market across the
curve, while our 12M forecast is above the forward market.
GBP Forecast summary
GBP
Spot
+12m
Base rate
0,25
0,10
0,10
0,10
3M
0,39
0,19
0,19
0,20
2-årig
0,16
0,10
0,10
0,15
5-årig
0,21
0,15
0,25
0,45
10-årig
0,56
0,50
0,65
0,90
2-årig
0,41
0,35
0,35
0,45
5-årig
0,49
0,40
0,50
0,70
10-årig
0,74
0,65
0,80
1,00
Statsobligationer
Swaprenter
Source: Danske Bank Markets
GBP swap curve
1,6 %
1,4
1,2
1,0
0,8
0,6
0,4
0,2
0,0
0
bp 0
-5
-10
-15
-20
-25
-30
3
6
9 12 15 18 21 24 27
Change,bp (rhs)
18-jul-16
Source: Danske Bank Markets
10Y UK swap rates
Source: Macrobond, Danske Bank Markets
Source: Macrobond, Danske Bank Markets
17 August 2016
+6m
Pengemarked
3M GBP Libor rates
5|
+3m
www.danskeresearch.com
17-aug-16
Yield Forecast Update
Denmark forecast
After a strong Q1, growth indicators have again turned more mixed in recent months and it
is likely Q2 was a bit weaker. Survey data show the Brexit vote has had little impact on
Danish consumers or businesses at the current stage but we expect to see more as the sharp
slowdown in the UK dampens investments in the rest of Europe. Inflation remains low and
the outlook for next year is dampened by plans to remove the PSO tax on electricity.
Forecasts summary
DKK
Spot
+3m
+6m
+12m
Money market
CD
-0,65
-0,65
-0,65
-0,65
REPO
0,05
0,05
0,05
0,05
Danmarks Nationalbank (DN) did not intervene in the FX market in July to support the
EUR/DKK peg by buying foreign currency. There has been some speculation whether a
Brexit event could trigger an FX inflow into DKK as DN sold DKK49bn in FX intervention
in total in May and June in the run up to the UK’s EU referendum. Our FX analysts forecast
EUR/DKK will trade at 7.4400 in 1-3M. In our view, this is not a level that should trigger
any significant currency inflow or outflow from Denmark. The intervention in May/June
and bond buybacks by the central bank using the government’s account have increased
banks’ net positions and have pushed short-term money-market rates down. Given the move
lower in DKK Cita rates over the past couple of months, we see little need for further rate
cuts in Denmark even if the ECB expands the purchase programme further. Hence, we
expect DN to keep the rate of interest on certificates of deposit unchanged at -0.65% on
12M. However, if the need to sell DKK in FX intervention accelerates, DN may opt to cut to
-0.75%. Likewise, if the ECB decides to cut its deposit rate further, DN will mirror this
down to -0.75% – a level we still view as the lower bound for the key policy rate in
Denmark. However, in general, we expect the central bank to use intervention to mitigate
any potential inflow if the ECB eases monetary policy further.
3M
-0,23
-0,20
-0,20
-0,20
6M
-0,06
2-year
-0,53
-0,52
-0,50
-0,50
5-year
-0,29
-0,25
-0,25
-0,20
10-year
0,10
0,30
2-year
5-year
10-year
-0,02
0,13
0,62
0,15
0,20
Swap rates
-0,02
0,00
0,13
0,13
0,71
0,74
The Danish money market has recently declined both outright and versus EUR rates and the
market does not expect CITA rates to move above EONIA rates before early 2018. Our
forecasts for the deposit rate and money-market rates are more or less in line with market
pricing. However, we still believe that the significant Danish current account surplus will
ensure that the Danish policy rate can stay below that of the ECB for the near future and in
2018 and beyond. We expect the general ‘hunt for yield’ in the wake of the stepped up ECB
QE programme to attract investors to the marginally higher yields in Denmark. We forecast
that 6M CIBOR fixings will stay marginally above zero, while we expect 3M fixings to stay
negative by 10-15bp. We expect 10Y swap rates to rise lightly on a 12M horizon in line
with EUR rates.
DKK swap curve
-0,05
-0,05
Government bonds
%
1,2
1,0
0,8
0,6
0,4
0,2
0,0
-0,2 0
bp
3
6
9 12 15 18 21 24 27
Ændring, bp (h-akse)
18-jul-16
Source: Danske Bank Markets
10Y DKK swap rates
Source: Macrobond Financial, Danske Bank Markets
Source: Macrobond Financial, Danske Bank Markets
17 August 2016
0,00
0,15
0,84
Source: Danske Bank Markets
3M Cibor rate
6|
0,03
www.danskeresearch.com
3
2
1
0
-1
-2
-3
-4
17-aug-16
Yield Forecast Update
Sweden forecast
Swedish GDP growth cooled significantly in the first half of 2016, with Q1 and Q2 printing
0.4% q/q and 0.3% q/q, respectively, now resembling growth rates in the EU area more than
the elevated rates seen in 2015. Weakness is seen in net exports and business spending,
while domestic sectors (private consumption and residential investments) continue to
perform. It remains to be seen how consumers/mortgage borrowers respond to the
mandatory amortisation requirement introduced on 1 June. Meanwhile, the labour market is
improving strongly, with employment and participation rates near all-time highs, giving an
unprecedented boost to government finances via soaring tax revenues. In our view, the Debt
Office is likely to have to cut the need for bond funding going forward. CPIF inflation was
steady in H1 on average around 1.3% y/y, reflecting moderating import price pressure and
still-low economy-wide wage growth just above 2%. In our view, inflation probably passed
the peak in H1 and there is a high probability that the trend has now turned down again.
Monetary policy is on autopilot for the time being: we do not expect any repo rate changes
and the Riksbank’s asset purchase programme runs until year-end. Eventually, the Riksbank
will have to make up its mind what to do after year-end and what this is will depend on
inflation and growth developments and whether the ECB extends its asset purchase
programme beyond March. As the Debt Office may cut bond supply in October, the risk of
an SGB bond squeeze is rising. Hence, the Riksbank may have to start looking at covered
bonds as an alternative to buying SGBs. At the same time, considering that we now see clear
evidence that previous inflationary SEK effects have passed (and reversed), we believe the
Riksbank is very likely to maintain close attention to the SEK and remain ready to act if it
appreciates too fast.
SEK rates have continued to rally over the summer, significantly outperforming EUR rates.
Given that further rate cuts do not appear to be on the agenda, curves have continued to
flatten. We also note a renewed interest from investors for the generally illiquid points on
the curve beyond 10Y; in our view, a clear indication that the hunt for yield is intensifying.
We expect further flattening pressure in coming months given our subdued outlook on
inflation, moderating growth and the risk of a further reduction in government bond supply.
In particular, we believe the long ends of yield curves have room to flatten further.
Forecast summary
SEK
Spot
+3m
Repo
-0,50
-0,50
-0,50
-0,50
3M
-0,55
-0,55
-0,50
-0,50
2-year
-0,64
-0,65
-0,65
-0,65
5-year
-0,36
-0,45
-0,45
-0,35
10-year
0,08
-0,10
0,00
0,10
2-year
-0,46
-0,50
-0,50
-0,50
5-year
-0,06
-0,05
-0,05
0,05
10-year
0,64
0,50
0,60
0,70
Government bonds
Swap rates
Source: Danske Bank Markets
SEK swap curve
2,0 %
bp 0
1,5
1,0
0,5
0,0
-0,5
-1,0
0
3
6
9 12 15 18 21 24 27
Change,bp (rhs)
18-07-2016
Source: Danske Bank Markets
10Y SEK swap rates
Source: Macrobond, Danske Bank Markets
Source: Macrobond, Danske Bank Markets
17 August 2016
+12m
Money market
3M Stibor rates
7|
+6m
www.danskeresearch.com
-1
-2
-3
-4
-5
-6
-7
17-08-2016
Yield Forecast Update
Norway forecast
We expect Norges Bank (NB) to cut the target rate by 25bp to 0.25% at the 22 September
monetary policy meeting. In its June Monetary Policy Report, NB guided towards a cut in
September, unless a major surprise on the upside should occur. Inflation has recently been
significantly higher than expected by NB. However, we believe that the high inflation at
present is not sufficient to make it refrain from cutting the target rate. On balance, data for
the real economy has recently been close to NB’s projections. High interbank interest rate
spreads imply that the recent target interest rate cuts have been passed on to corporates only
to a limited degree. This phenomenon probably counterbalances the effect of higher
inflation and suggests that NB will stick to its initial plan and deliver a cut of 25bp in
September.
Forecast summary
NOK
Spot
+3m
+6m
+12m
Money market
ON DEP
0,50
0,25
0,25
0,25
3M
1,07
0,75
0,75
0,65
2-year
0,61
0,50
0,50
0,50
5-year
0,69
0,60
0,70
0,80
10-year
1,09
1,10
1,20
1,40
July core CPI jumped to a high 3.7% y/y. Over the past year, NB has accepted above-target
inflation, as the increase has been driven by a weaker NOK and higher import prices and the
weaker wage and demand outlook were expected to drag inflation lower eventually. The
details showed that domestic price pressure has picked up, which creates concerns about
price-cost spirals. Indeed, the July print alone should (from an historical perspective) lift
NB’s rate path in September by close to a full hike, which is why a substantial amount of
rate cut expectation has been priced out in NOK rates.
2-year
1,13
1,00
1,00
1,00
5-year
1,15
1,05
1,15
1,25
10-year
1,41
1,45
1,55
1,75
Domestic indicators have on balance been roughly as expected and still suggest an
improved private sector growth outlook, albeit from weak levels. While goods consumption
remains weak, leading indicators for manufacturing production suggest an improved
outlook. Yet, substantially higher survey indicators have at this point not materialised in
hard data and July manufacturing production disappointed on the downside. Perhaps the
strongest data points in Norway are the NAV (i.e. registered) labour market reports that
reveal not only steady gross unemployment levels at a national level, but also falls in the
number of unemployed people in some non-oil dependent areas, including Oslo. Also, the
increase in new job vacancies is encouraging.
NOK swap curve
Government bonds
Swap rates
Source: Danske Bank Markets
1,7 %
bp 25
1,5
20
1,3
15
1,1
10
0,9
5
0,7
0
0
3
6
Ændring, bp (h-akse)
10Y NOK swap rates
Source: Macrobond, Danske Bank Markets
Source: Macrobond, Danske Bank Markets
17 August 2016
18-07-2016
Source: Danske Bank Markets
3M Nibor rates
8|
9 12 15 18 21 24 27
www.danskeresearch.com
17-08-2016
Yield Forecast Update
Forecast table
NOK
SEK
DKK
GBP
EUR *
USD
Forecast table
Horizon
Policy rate
3m xIbor
2-yr swap
2-yr gov
5-yr gov
10-yr gov
Spot
0.50
0.80
0.98
1.16
1.43
0.75
1.15
1.57
+3m
0.50
0.76
0.95
1.15
1.50
0.75
1.15
1.60
+6m
0.50
0.75
0.95
1.30
1.60
0.80
1.30
1.70
+12m
0.75
0.99
1.35
1.65
1.85
1.20
1.60
1.90
Spot
0.00
-0.30
-0.22
-0.13
0.31
-0.62
-0.51
-0.05
+3m
0.00
-0.30
-0.22
-0.10
0.35
-0.62
-0.50
-0.05
+6m
0.00
-0.30
-0.15
-0.10
0.50
-0.55
-0.50
0.10
+12m
0.00
-0.30
-0.15
-0.05
0.70
-0.55
-0.45
0.30
Spot
0.25
0.39
0.40
0.48
0.73
0.17
0.21
0.57
+3m
0.10
0.19
0.35
0.40
0.65
0.10
0.15
0.50
+6m
+12m
0.10
0.10
0.19
0.20
0.35
0.45
0.50
0.70
0.80
1.00
0.10
0.15
0.25
0.45
0.65
0.90
5-yr swap 10-yr swap
Spot
0.05
-0.22
-0.02
0.12
0.60
-0.53
-0.30
0.10
+3m
0.05
-0.20
-0.02
0.13
0.71
-0.52
-0.25
0.15
+6m
0.05
-0.20
0.00
0.13
0.74
-0.50
-0.25
0.20
+12m
0.05
-0.20
0.00
0.15
0.84
-0.50
-0.20
0.30
Spot
-0.50
-0.55
-0.46
-0.07
0.62
-0.63
-0.37
0.07
+3m
-0.50
-0.55
-0.50
-0.05
0.50
-0.65
-0.45
-0.10
+6m
-0.50
-0.50
-0.50
-0.05
0.60
-0.65
-0.45
0.00
+12m
-0.50
-0.50
-0.50
0.05
0.70
-0.65
-0.35
0.10
Spot
0.50
1.07
1.13
1.15
1.41
0.61
0.68
1.08
+3m
0.25
0.75
1.00
1.05
1.45
0.50
0.60
1.10
+6m
0.25
0.75
1.00
1.15
1.55
0.50
0.70
1.20
+12m
0.25
0.65
1.00
1.25
1.75
0.50
0.80
1.40
Note: * German government bonds are used, EUR swap rates are used
Source: Danske Bank Markets
9|
17 August 2016
www.danskeresearch.com
Yield Forecast Update
Disclosures
This research report has been prepared by Danske Bank Markets, a division of Danske Bank A/S (‘Danske Bank’).
The authors of the research report are Arne Lohmann Rasmussen (Chief Analyst) and Mathias Røn Mogensen
(Analyst).
Analyst certification
Each research analyst responsible for the content of this research report certifies that the views expressed in this
research report accurately reflect the research analyst’s personal view about the financial instruments and issuers
covered by the research report. Each responsible research analyst further certifies that no part of the compensation of
the research analyst was, is or will be, directly or indirectly, related to the specific recommendations expressed in the
research report.
Regulation
Danske Bank is authorised and subject to regulation by the Danish Financial Supervisory Authority and is subject to
the rules and regulation of the relevant regulators in all other jurisdictions where it conducts business. Danske Bank
is subject to limited regulation by the Financial Conduct Authority and the Prudential Regulation Authority (UK).
Details on the extent of the regulation by the Financial Conduct Authority and the Prudential Regulation Authority
are available from Danske Bank on request.
The research reports of Danske Bank are prepared in accordance with the Danish Finance Society’s rules of ethics
and the recommendations of the Danish Securities Dealers Association.
Conflicts of interest
Danske Bank has established procedures to prevent conflicts of interest and to ensure the provision of high-quality
research based on research objectivity and independence. These procedures are documented in Danske Bank’s
research policies. Employees within Danske Bank’s Research Departments have been instructed that any request that
might impair the objectivity and independence of research shall be referred to Research Management and the
Compliance Department. Danske Bank’s Research Departments are organised independently from and do not report
to other business areas within Danske Bank.
Research analysts are remunerated in part based on the overall profitability of Danske Bank, which includes
investment banking revenues, but do not receive bonuses or other remuneration linked to specific corporate finance
or debt capital transactions.
Financial models and/or methodology used in this research report
Calculations and presentations in this research report are based on standard econometric tools and methodology as
well as publicly available statistics for each individual security, issuer and/or country. Documentation can be
obtained from the authors on request.
Risk warning
Major risks connected with recommendations or opinions in this research report, including a sensitivity analysis of
relevant assumptions, are stated throughout the text.
Date of first publication
See the front page of this research report for the date of first publication.
General disclaimer
This research has been prepared by Danske Bank Markets (a division of Danske Bank A/S). It is provided for
informational purposes only. It does not constitute or form part of, and shall under no circumstances be considered as, an
offer to sell or a solicitation of an offer to purchase or sell any relevant financial instruments (i.e. financial instruments
mentioned herein or other financial instruments of any issuer mentioned herein and/or options, warrants, rights or other
interests with respect to any such financial instruments) (‘Relevant Financial Instruments’).
The research report has been prepared independently and solely on the basis of publicly available information that
Danske Bank considers to be reliable. While reasonable care has been taken to ensure that its contents are not untrue
or misleading, no representation is made as to its accuracy or completeness and Danske Bank, its affiliates and
subsidiaries accept no liability whatsoever for any direct or consequential loss, including without limitation any loss
of profits, arising from reliance on this research report.
The opinions expressed herein are the opinions of the research analysts responsible for the research report and reflect
their judgement as of the date hereof. These opinions are subject to change and Danske Bank does not undertake to
notify any recipient of this research report of any such change nor of any other changes related to the information
provided in this research report.
10 |
17 August 2016
www.danskeresearch.com
Yield Forecast Update
This research report is not intended for, and may not be redistributed to, retail customers in the United Kingdom or the
United States.
This research report is protected by copyright and is intended solely for the designated addressee. It may not be
reproduced or distributed, in whole or in part, by any recipient for any purpose without Danske Bank’s prior written
consent.
Disclaimer related to distribution in the United States
This research report was created by Danske Bank A/S and is distributed in the United States by Danske Markets Inc.,
a U.S. registered broker-dealer and subsidiary of Danske Bank A/S, pursuant to SEC Rule 15a-6 and related
interpretations issued by the U.S. Securities and Exchange Commission. The research report is intended for
distribution in the United States solely to ‘U.S. institutional investors’ as defined in SEC Rule 15a-6. Danske
Markets Inc. accepts responsibility for this research report in connection with distribution in the United States solely
to ‘U.S. institutional investors’.
Danske Bank is not subject to U.S. rules with regard to the preparation of research reports and the independence of
research analysts. In addition, the research analysts of Danske Bank who have prepared this research report are not
registered or qualified as research analysts with the NYSE or FINRA but satisfy the applicable requirements of a
non-U.S. jurisdiction.
Any U.S. investor recipient of this research report who wishes to purchase or sell any Relevant Financial Instrument
may do so only by contacting Danske Markets Inc. directly and should be aware that investing in non-U.S. financial
instruments may entail certain risks. Financial instruments of non-U.S. issuers may not be registered with the U.S.
Securities and Exchange Commission and may not be subject to the reporting and auditing standards of the U.S.
Securities and Exchange Commission.
11 |
17 August 2016
www.danskeresearch.com