We see more upside ahead in U.S. yields and expect a breach of the June high of 3.50% in the 10-year yield until the end of the year.
We have been a bit surprised by the magnitude of the rise in longer Bund yields, which has been even faster than in the Treasuries space. However, the upside pressure could easily prevail in the near term, as ECB Governing Council members return from their summer holidays and the majority of their comments is likely to have a hawkish tone. The market has started to price in a risk of a 75bp ECB hike at the meeting on 8 September. We hold on to our baseline of a 50bp increase, but see a clear risk of an ECB surprise.
In the FX space, the EUR/USD has fallen to trade more convincingly below parity. We see more downside ahead and continue to target 0.97 by the end of the year. - Nordea
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