ING THINK
Loading…
FX BANK FORECAST · COVERAGE
Institutional FX coverage in your inbox
Aggregated year-end forecasts, scenario shifts, and curated analyst notes from 36 institutional desks. No promotion.
FX BANK FORECAST · COVERAGE
Aggregated year-end forecasts, scenario shifts, and curated analyst notes from 36 institutional desks. No promotion.
The desk contends that the long-end of global bond markets is at a critical juncture, characterized by a worrying upward trend in yields that could destabilize the existing equilibrium. Per the full note from ING, while current long-term yields may seem reasonable, external pressures are likely to propel them higher, driving tensions particularly in the context of Japanese yields and the Bank of Japan's (BoJ) slow response to inflation. With a significant divergence in yields, particularly noted in the Japanese 30-year yield hitting 4.2%, institutional traders should monitor the potential spillover effects into key currency pairs like EUR/USD and USD/JPY. Consensus from our coverage suggests targets for the EUR/USD at 1.1700 and GBP/USD at 1.3400 for March 2026, hinting at some expectations of relative stability amidst volatility in bond yields.
The desk argues that global bond markets are reaching a tipping point characterized by rising long-term yields, mainly driven by inflationary pressures and central banks' lagging adjustments. Per the full note from ING, while yields appear fair at this moment, ongoing economic factors—most notably from Japan—are exerting significant upward pressures that could disrupt this equilibrium.
The Japanese 30-year yield's spike to 4.2%, which is substantially higher than the BoJ's policy rate of 1%, underscores the urgency in this situation. This yield increase reflects a broader theme of synchronized upward movement in developed markets, presenting potential risks for currency pairs like USD/JPY, which are already under pressure from perceived monetary policy delays.
Currently, our EUR/USD consensus target is set at 1.1700 with a range from 1.1200 to 1.2000. Highlights among our per-firm targets for December 2026 include: - RBC: 1.2000 - Morgan Stanley: 1.2150 - ING: 1.1700
The desk's outlook aligns closely with forecasts from ING and RBC, which anticipate similar levels, while remaining at the lower end of the target spectrum. The contrast in bond yield dynamics suggests that even slight shifts in the inflation trajectory could catalyze volatility against this backdrop, pushing against current consensus expectations.
Consensus appears mixed among firms viewing rising yields. On one side, RBC and ING support this bullish outlook on yields, while firms like Nomura have expressed more caution, predicting lower targets in the near term.
Moreover, the trajectory of USD/JPY is worth watching for spillover effects, particularly given the BoJ's current yield curve control policy and its impacts on broader market sentiment. The divergence in expectations around U.S. and Japanese monetary policy response times could add complexity to any related trades.
No high-impact events are scheduled on the calendar in the next 30 days, but traders should remain vigilant to any unexpected moves from central banks that could shift the current dynamics abruptly. An unexpected announcement from the BoJ or changes in U.S. Federal Reserve policy could amplify the effects being discussed.
How firms align with this view
Aligned with the desk view
Contrary positioning
Key takeaways
Market implications
Traders should pay close attention to the USD/JPY level at 161.2860, as developments in Japanese monetary policy could trigger significant movement in the pair. Moreover, with consensus targets for EUR/USD set at 1.1700, any shifts in bond yields could serve as catalysts impacting expectations in both directions.
Risks to this view
Should the BoJ pivot unexpectedly or increase their policy rate, this could lead to a rapid recalibration of the current bond market dynamics, undermining the desk's outlook on currency pairs like USD/JPY. Additionally, stronger-than-expected inflation data from the U.S. could challenge stable yield expectations, prompting a sell-off in the FX markets.
| Firm | Stance | YE 2026 |
|---|---|---|
Goldman Sachs | Bearish | 1.1200 |
J.P. Morgan | Bearish | 1.1300 |
UOB | Bullish | 1.1800 |
All 30 desk targets for EUR/USD
Articles Rates: Global bond markets at a tipping point Published 11:43 Rates Share X LinkedIn E-mail Copy link Share X LinkedIn E-mail Copy link Download If the music stopped now, the absolute level of long-end yields for many issuers looks reasonably fair. The problem is the music is still blaring. A lot is going on, and most of the pressure continues to point upwards for long rates.
That does not have to be a drama, but then again, it could become one should it get pushed too far Padhraic Garvey, CFA Stop the music here and the absolute level of long-end yields looks reasonably fair. The problem is the music is still blaring It can take a lot to awaken long-end yields, but when they get prompted into action, they can be quite flighty. We've seen various episodes of this in recent years for idiosyncratic reasons.
Think UK gilts and French OATS and respective political post-pandemic wobbles, or the perception of joint liability attached to Italian BTPs and concern there pre-pandemic. The past number of months have been different, as we've seen a synchronised rot attach to long ends, in particular across many (or most) developed markets. Japanese 30yr yield (%) – off the charts Source: Macrobond, ING estimates "> Source: Macrobond, ING estimates Japan: From zero to hero on the 30yr yield One of the standouts here is the Japanese 30yr yield, which has touched 4.2%.
That's four times the policy rate (currently 1%). There is clearly a tension between these two. The genesis of that is the evolution of a normalised inflation dynamic.
The Bank of Japan (BoJ) has undershot versus this, so the long end has had to overreact. And that BoJ tension is also reflected in severe weakness attached to the Japanese yen. So much so that it prompted joint intervention between the US and Japan, in an effort to calm instability.
But the root cause here is a slow BoJ. If that does not change, the pressure will remain. US 10yr real yield (%) – back to 'normal', or slightly above Source: Macrobond, ING estimates "> Source: Macrobond, ING estimates US: The cross-over point that 5% on the 10yr suggests We've opined on the link between this and US Treasuries here .
Essentially, if the yen required aggressive enough offsetting selling of US dollars, it risks a sell US Treasuries narrative. And that's the last thing the US Treasury wants to see right now. Especially as Treasury Secretary Scott Bessent has made it known through a doubling of long-end buybacks that there is a degree of discomfort when Treasury yields hit elevated levels.
The root problem here is the size of the fiscal deficit, and until that is properly addressed, the pressure attached to Treasury yields is set to remain. The US 10yr yield is now at 4.8%, with progress toward 5% quite probable ahead. A key area to watch is 5% on the US 10yr yield.
Breaks above that would likely be resisted by the US Treasury. If the 10yr yield does break above, remember that 5% is not particularly high. We hit that level back in 2023, and the long-run fair neutral value for the 10yr yield is in the area of 4.5% (see here ).
At '5%', we're above that. But we arguably should be, given where inflation (3.5%) and the fiscal deficit (6% of GDP) are printing. A few things are going on here.
First, we should not forget that the pandemic shocked developed markets into inflation generation, resulting in a logical tendency for interest rates to return toward normal (from being abnormally low). Second, the pandemic generated a material build in developed market government debt, and took already rocky debt dynamics to a more troubling place. The US is a clear case in point here.
Eurozone: Caught between cross-winds Meanwhile, the US fiscal pressure, together with a changing political dynamic, has injected an increased defence need for European governments, in turn adding to fiscal spending requirements in the future. And various energy shocks have added to European inflation pressure. That, together with a far more troubling contemporaneous inflation dynamic, is forcing eurozone yields to the upside.
On the front end, the European Central Bank has hiked and is set to do more. On the back end, there is a relative value re-pricing required so that eurozone long-end rates sit appropriately versus alternatives. For example, in March this year, the 30yr Japanese yield moved above the 30yr German yield, and that spread has since widened to the 40bp area.
That's a simultaneous relative value pressure. Throw in the 30yr UK gilt yield at just short of 6% and there is a self-fulfilling path of least resistance higher that we need to remain concerned with. AI: The productivity boom The issue right now is that there is no material countervailing force to resist these moves.
Also, they are being driven predominantly by higher real rates. Higher real rates are tougher to reverse, until or unless we get to a level where demand for elevated yields begins to kick in. Fed Chair Kevin Warsh at the opening of the G20 finance meeting spoke of an upcoming discussion on what he described as a secular growth phase ahead.
This is no doubt in reference to the productivity revolution that could come from the astonishing AI spend currently ongoing, which in itself is making a material contribution to macro-wide spending. That correlates with higher real yields, as does duration-heavy issuance pressure in this space. Given this, it's tough to see the pressure for higher long-end yields magically dissipate.
And even when it does for a period, the Iran war and energy price pressure provide an additional excuse to keep them elevated. This is especially a live problem for Europe to deal with, and for Asia, and indeed beyond. Given this weight of confluences, Treasury Secretary Bessent may well have his work cut out to ease the pressure through increased Treasury long-end buybacks (these start on 9 September).
The risk is we may have to endure an overshoot before things structurally calm, as the current upside pressure on real rates remains intense. US Treasury yields Interest rates Eurozone yields Content Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument.
Read more Share X LinkedIn E-mail Copy link Share X LinkedIn E-mail Copy link Download Author Padhraic Garvey, CFA Regional Head of Research, Americas Padhraic Garvey is the Regional Head of Research, Americas. He's based in New York. His brief spans both developed and emerging markets and he specialises in global rates and macro relative… Included in the following bundle Bundle Published 11:55 ING Monthly: Weathering the shocks This bundle contains 15 Articles In this article Japan: From zero to hero on the 30yr yield US: The cross-over point that 5% on the 10yr suggests Eurozone: Caught between cross-winds AI: The productivity boom
How we cover this story
Rising yields typically reflect stronger growth or hawkish policy expectations; EUR/USD pressure at 1.16 suggests USD strength from higher US rate premia.
EUR/USD downside bias toward 1.1550 signals technical weakness that may reinforce USD strength positioning in short-term trades.
USD/JPY trades at 157.38, roughly 0.88% above the 23-firm median Dec-26 target of 156.0, with a 25.5-point dispersion signalling deep disagreement on the BoJ-Fed spread path.
EUR/USD spot sits 0.96% below the 30-firm median Dec-26 target of 1.17, with a 0.14 dispersion range signalling meaningful disagreement on the path ahead.
Cable trades at 1.3501 with the 21-firm median Dec-26 target also at 1.35, masking a 0.23 spread between Morgan Stanley's 1.47 bull case and Citi's 1.24 bear.
30 investment banks see EUR/USD at 1.1652 by Dec 2026
View the live EUR/USD forecastBofA |
MUFG |
DB |
SG |