US: Expect the yield curve to flatten further – Danske Bank

Analysts at Danske Bank expect the US yield curve to flatten further and suggest that in the fixed income market, the big market theme this year has been the continued flattening of the US yield curve, where for example the 2Y10Y Treasury-curve has flattened more than 70bp in 2017 despite the Fed hiking ‘three times’ after the December meeting.

Key Quotes

“We argue that two of the reasons have been the consistent focus on R-star and the downward revisions to longer-run dots. If we see the dots unchanged for 2018/19 and a further downward revision to the longer-run dot, we would expect the flattening to accelerate.”