US Bonds: We do not see a major sell-off this year - Danske Bank

According to analysts from Danske Bank, the Federal Reserve will make an announcement regarding the balance sheet at the next meeting and will raise rates again in December. They expect a flattening of the yield curve on a 12M horizon.

Key Quotes: 

“Despite low inflation, we maintain our call that the Fed will make an announcement on quantitative tightening at the next meeting in September and hike for the third time this year in December.”

“The market, meanwhile, has continued to price out the probability of a new rate hike this year, with a hike now priced in by less than 50%. Hence, if our baseline scenario is correct, it should tend to push US yields slightly higher. However, we do not see a major sell-off this year.”

“In 2018, we expect growth in the US economy to continue, which, in our view, would trigger another rate hike in summer 2018. We continue to expect a flattening of the curve for the 2Y10Y on a 12M horizon. The shortend would be pushed higher by Fed rate hikes, while the long-end would be kept low by investors buying “high yielding” US fixed income assets.”