Rates on the brink: 3 calls for 2027
At a Glance
The desk is leaning towards a gradual rise in yields through 2027 with subsequent cooling, indicating potential upward pressure on Treasury yields as high as 5.25-5.5% before a decline to 4.5-4.75%. This outlook aligns with ING's assessment which suggests sustained inflation and fiscal pressures, but a cooling regime as underlying inflation retreats. Current positioning reflects a consensus that expects long-end rates to remain in flux as tighter monetary policies may prevail amidst economic uncertainty. Per the full note , the trajectory of yields will prove critical for main FX pairs, especially EUR/USD, GBP/USD, and USD/JPY, which are influenced by these shifts in rate expectations.
Key Takeaways
- 01The desk expects US yields to rise to 5.25-5.5% before retreating to 4.5-4.75% as inflation eases.
- 02Inflation and fiscal pressures are primary catalysts influencing long-end rates over the next few years.
- 03EW and Yenk require close monitoring as they closely mirror the Fed's policy shifts.
- 04Consensus across firms shows a variety in outlooks, reflecting uncertainty around both ECB and Fed rate paths.
Full Analysis
What the desk is arguing
The desk postulates that US Treasury yields are poised for a gradual ascent towards the 5.25-5.5% range over the next couple of years before retreating due to easing inflationary pressures. This narrative is strongly supported by ING's commentary, which emphasizes the role of persistent inflation and fiscal deficits as catalysts for higher yields. As inflation cools, we expect yields to stabilize between 4.5-4.75%, particularly as the Fed pivots towards easing later in 2027.
The scenario outlined by ING presents a credible pathway to higher yields due to systemic factors like AI-driven productivity gains and potential energy shocks that could push inflation higher. The risks of financial instability and tightening central bank policies are key considerations, as both could keep yields elevated across the curve into 2027.
Where it sits in our coverage
Our current median consensus for EUR/USD stands at 1.1425 with a range of 1.1162-1.2000, while GBP/USD is set at 1.3500 amidst varying predictions across firms like rbc (1.3600), commerzbank (1.4020), and barclays (1.3800) for Dec-26. Similarly, JPY shows a median at 156.000, with firms like hsbc forecasting 145.000 and nomura displaying a range of targets aligning closely with market sentiment.
While the desk's forecast for upward pressure on yields aligns closely with expectations, it sits towards the upper end of these forecasts, particularly as euro and sterling rates face a potentially lower trajectory than currently anticipated by the consensus.
How other firms see it
There is a division among firms regarding future yield trajectories: many, including rbc and hsbc, project limited upside on euro rates, indicating skepticism towards higher ECB rates, while bofa and nomura lean towards more conservative estimates. The former group's outlook complements the desk's bullish yield enthusiasm.
The expected behavior of EUR/USD will likely reflect this divergence as it corresponds to ECB monetary policy dynamics moving forward, underscoring the importance of this Fed-ECB interplay in shaping rate paths and consequent FX strategies.
Market Implications
Traders should closely monitor yield movements, particularly in the context of upcoming Federal Reserve communications that may shift market expectations around rate paths. Key levels around 5.25-5.5% for the 10-year Treasury could define hedging strategies ahead of potential position adjustments.
EUR/USD — All Desk Targets
| Firm | Stance | YE 2026 |
|---|---|---|
UBS | Bullish | 1.1600 |
Scotiabank | Bearish | 1.0900 |
MUFG | Neutral | 1.1200 |
From the original
Articles Rates on the brink: 3 calls for 2027 Published 08:30 Rates Translate Share X LinkedIn E-mail Copy link Share X LinkedIn E-mail Copy link Download Our base call sees yields rising to 5.25-5.5% before easing to 4.5-4.75% as inflation cools. Our risky call has US 10-year yi
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