Danske Bank Forecasts Drop In 10 Year Bond Yield

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Danske Bank Forecasts Drop In 10 Year Bond Yield

Danske Bank Forecasts 10-Year Bond Yield To Reach 3.7% In Next 12M

Danske Bank is a well-known name in the investment banking sector that issues forecasts for different assets. This time, Danske Bank has issued a forecast for the 10-year bond yields from the USA - They have made it clear that the yields can't stay at higher levels for a long period of time.

In the last few weeks, the bond markets have been going through a big selling momentum, which is positive for the yields of the government bonds. But that will not last for long as an increase in the yield of long-term bonds is an indication of an increase in the premium.

At the same time, the expectations for a rate that is risk-neutral are pretty much stable, which adds another dimension to the whole saga.

Downside Pressure In Bond Yields

For now, the financial conditions are hinting at potential tightness, which means there will be growth risks to the economy as well. All of these factors also favor a downside movement in the long-term bond yields.

Danske Bank also added that the consumption in the USA will also cool down as we enter the winter months. In addition, inflation will also go down as the Fed is not in the mood to lower the rates.

During Q4 2023, the dynamics of the supply and demand will remain unfavorable, which is also a troublesome factor for the US economy. However, an improvement in the demand will also mean the yields of long-term bonds will go lower as well.

That's why the forecast for the next 12M (12 months) is set at a 3.70% yield. Danske Bank also added that despite the downside pressure, there's also a chance of upside risk as well.

For now, the yield for the 10Y bond is 4.74%, while the forecast puts it at 3.70% during the next 12M. In simple words, the most favorable route for bond yields is the downside.

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