Yield Forecast Update Central banks set the direction in 2016

Investment Research — General Market Conditions 21 October 2015 Yield Forecast Update Central banks set the direction in 2016 Global central banks c...
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Investment Research — General Market Conditions

21 October 2015

Yield Forecast Update Central banks set the direction in 2016 Global central banks continue to set the direction for global fixed income markets. The big unknown is still if, and when, the Fed will initiate its long-awaited hiking cycle after the Fed funds rate has been at 0.25% since the financial crisis. We have previously called for a start of the hiking cycle in December 2015. However, the slowdown in jobs growth, the continued lack of wage inflation and emerging market concerns are likely to keep the Fed off the trigger a while longer, and we now expect the first Fed Funds rate hike in January next year when the unemployment rate is expected to be even lower than is the case today. However, given the global uncertainty, there is a clear risk that the Fed will wait until the March FOMC meeting, especially if concerns about China deepen and if the current slowdown in manufacturing intensifies.

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We expect the Fed to hike rates three times next year (75bp) and raise rates by 100bp in 2017. The pace of rate hikes implied by money market forward rates has become even more subdued with only two hikes priced for next year and less in 2017. Hence, we see a ‘modest’ upside for US yields for the next twelve months, even though the Fed will probably do its utmost to convince the market that it is not about to engage in an aggressive tightening cycle. Furthermore, as the ECB and Bank of Japan are expected to ease monetary policy further, the global ‘search for yield’ should help keeping long treasury yields low and we expect the US curve 2Y10Y and 5Y10Y to flatten in 2016.

Forecasts table

In Europe, all attention is on the ECB where the pressure for further easing is building. Inflation turned negative in September and Euro area GDP growth is set to weaken on back of the slowdown in China and other emerging markets. We have already seen the euro area financial sentiment indicators drop significantly and are now starting to see the first signs of the real economic impact, especially in Germany, through lower exports. The recent appreciation of the effective euro will also be a headwind to exports. Looking into 2016, we project core inflation to be modest as wage pressure is likely to remain very subdued. Hence, we expect that in December the ECB will extend its QE purchases beyond 2016 and continue with a clear easing bias. However, we expect neither an expansion of the monthly QE purchases nor a new cut in the repo rate, as the market has started to price over the last month. This said, we still expect that the ECB easing and the global growth concerns will be able to drag 10Y bund yields towards 0.5% over the next three months. In 2016, we expect that higher US yields will push EUR yields higher. The effect will be felt mainly in the 10Y segment of the curve, as the ECB is keeping 2Y and 5Y yields on a tight leash throughout the forecast horizon. Overall, we now expect 10Y German yields to stay around 0.5% in Q4 and to rise slowly towards 0.9% on a 12M horizon. This will result in a steepening of the curve 2Y10Y.

Eurozone forecasts US forecasts UK forecasts Denmark forecasts Sweden forecasts Norway forecasts

Policy rate outlook Country

Spot

+3m

+6m

+12m

USD EUR GBP DKK

0.25 0.05 0.50 0.05

0.25 0.05 0.50 0.05

0.50 0.05 0.75 0.05

1.00 0.05 1.25 0.05

SEK NOK

-0.35 0.75

-0.45 0.75

-0.45 0.75

-0.45 0.75

Source: Danske Bank Markets

10-year bond yield outlook Country

Spot

+3m

+6m

+12m

USD GER GBP

2.05 0.61 1.83

2.20 0.50 1.90

2.40 0.70 2.10

2.65 0.90 2.40

DKK SEK

0.91 0.75

0.80 0.55

0.95 0.65

1.15 0.95

NOK

1.62

1.50

1.70

1.90

Source: Danske Bank Markets

Scandi rates – more easing in Sweden As currency continues to flow out of Denmark, we still expect Danmarks Nationalbank to hike rates twice on a 6M horizon taking the deposit rate to -0.55%. In Sweden, we expect a final rate cut before year-end. Finally, we believe Norges Bank has completed its easing cycle as the NOK has weakened and as the oil price is expected to rise somewhat in 2016.

Editor:

Important disclosures and certifications are contained from page 10 of this report.

www.danskeresearch.com

Chief Analyst Arne Lohmann Rasmussen +45 45 12 85 32 [email protected]

Yield Forecast Update

Contents and contributors Eurozone ...................................................................................................................................................................................................................................................................... 3 Macro

Analyst

Pernille Bomholdt Nielsen

Interest rates

Chief Analyst

Arne Lohmann Rasmussen +45 45 12 85 32

+45 45 13 20 21

[email protected] [email protected]

US ...................................................................................................................................................................................................................................................................................... 4 Macro & Interest rates

Senior Analyst

Signe Roed-Frederiksen

Interest rates

Chief Analyst

Arne Lohmann Rasmussen +45 45 12 85 32

+45 45 12 82 29

[email protected] [email protected]

UK ...................................................................................................................................................................................................................................................................................... 5 Macro & Interest rates

Senior Analyst

Morten Helt

+45 45 12 85 18

[email protected]

Denmark ....................................................................................................................................................................................................................................................................... 6 Macro

Senior Economist Las Olsen

Interest rates

Chief Analyst

+45 45 12 85 46

Arne Lohmann Rasmussen +45 45 12 85 32

[email protected] [email protected]

Sweden .......................................................................................................................................................................................................................................................................... 7 Macro & Interest rates

Chief Analyst

Michael Boström

+46 (0)8-568 805 87

[email protected]

Senior Analyst

Michael Grahn

+46 (0)8-568 807 00

[email protected]

Senior Analyst

Marcus Söderberg

+46 (0)8-568 805 64

[email protected]

Senior Analyst

Carl Milton

+46 (0)8-568 805 98

[email protected]

Norway .......................................................................................................................................................................................................................................................................... 8 Macro & Interest rates

Chief Analyst

Arne Lohmann Rasmussen +45 45 12 85 32

[email protected]

Forecast table .......................................................................................................................................................................................................................................................... 9

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Yield Forecast Update

Eurozone forecasts Growth and inflation Euro area GDP growth is set to weaken on back of the slowdown in China and other emerging markets. We have already seen the euro area financial sentiment indicators drop significantly and especially German exports have suffered. Besides the slowdown in China, the recent appreciation of the effective euro will also be a headwind to exports. Despite the above negative effects, we still project GDP growth of 1.4% in 2015 due, amongst others reasons, to a solid progress in private consumption. Looking into 2016, we expect the recovery to strengthen further and forecast growth of 1.7%. Last month inflation again turned negative, driven by lower gasoline prices. However, in our view, the deflation is set to be temporary and we look for a sharp rise in inflation in Q4, as the drag from energy prices should start to fade. Looking into 2016, we project core inflation to be modest as wage pressure is likely to remain subdued and as we forecast a stronger EUR.

Monetary policy and money markets We do not see the dip back into deflation in September as sufficient reason for the ECB to step up its accommodative monetary policy in October. However, we still expect the ECB to extend its QE purchases beyond 2016, but to remain on hold at least until December, and possibly until Q1 2016. This reflects, among other things, the comment made by Draghi in September ‘We may see negative numbers of inflation in the coming months’. A trigger for an extension of the QE purchases could be a downward revision to the ECB’s inflation projection. Especially because the ECB expects the core inflation to rise to 1.4% next year, a view that we think is very optimistic.

Yield curve

Forecasts summary EUR

Spot

+12m

ECB

0.05

0.05

0.05

0.05

3M

-0.05

-0.04

-0.04

-0.04

2-year

-0.24

-0.25

-0.25

-0.20

5-year

0.00

0.00

0.00

0.10

10-year

0.61

0.50

0.70

0.90

2-year

0.04

0.05

0.05

0.10

5-year

0.35

0.35

0.35

0.45

10-year

0.98

0.85

1.05

1.25

German government bonds

Swaprates

Source: Danske Bank Markets

EUR swap curve bp 0

1.5 1.0 0.5 0.0

-0.5

0

3

6

9 12 15 18 21 24 27

Change,bp (rhs)

21-Sep-15

Source: Danske Bank Markets

3M Euribor

10Y EUR swap rates

Source: Macrobond Financial, Danske Bank Markets

Source: Macrobond Financial, Danske Bank Markets

21 October 2015

+6m

Money market

2.0 %

The combination of global growth concerns, lower US yields, low inflation and expectations that the ECB soon will extend and expand the current QE programme and even cut the deposit rate further into negative territory has pushed EUR rates lower across the curve since our last update. We expect to see modest further downward pressure on 10Y yields over the next three months. However, looking six and 12 months ahead, the spillover from the US yields should result in a slight upward pressure on 10Y yields. In our view, the spill-over from the US will be felt mainly in the 10Y segment as ECB keeps 2y and 5Y yields in check with QE purchases, and we look for a steepening of the EUR curve 2Y10Y and 5Y10Y. Our 12M forecast for 10-year rates are, on a 12 month horizon, marginally above forwards, while those for two-year and five-year rates are slightly below.

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+3m

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-1 -2 -3 -4 -5 -6 -7

21-Oct-15

Yield Forecast Update

US forecasts Growth and inflation Job growth slowed in August and September and wage inflation remains muted despite an unemployment rate of 5.1% - close to the assumed NAIRU. Uncertainty over the amount of slack in the labour market thus remains. Domestic data has been solid although growth rates have cooled off a bit. On the other hand, the manufacturing sector is slowing on a combined negative impetus from an inventory overhang built up in the first half of the year, a strong USD and weaker global demand. GDP growth is thus likely to have slowed in Q3 but we expect it to move higher again by year-end. Risks to the outlook have risen, as the slowdown in China and emerging market in general could hurt US growth through several channels: a direct shock to exports, a negative impetus from a stronger USD (so far small) and a sentiment effect on investments via increased uncertainty over global growth (unknown so far). PCE inflation remains low but we expect a gradual uptrend next year driven by rising wage growth, upward pressure from rising unit labour costs and the higher oil price.

Forecasts summary USD

Spot

+3m

+6m

+12m

Money market FED

0.25

0.25

0.50

1.00

3M

0.32

0.52

0.69

1.25

2-year

0.62

0.95

1.20

1.60

5-year

1.37

1.80

2.00

2.35

10-year

2.05

2.20

2.40

2.65

2-year

0.73

1.10

1.35

1.75

5-year

1.39

1.90

2.10

2.45

10-year

2.01

2.25

2.50

2.75

Government bonds

Swap rates

Source: Danske Bank Markets

Monetary policy and the money market The slowdown in job growth and continued lack of wage inflation is likely to keep the Fed off the trigger a while longer. We now expect the first Fed Funds rate hike in January next year with a risk that the Fed will wait until the March FOMC meeting. We expect three hikes next year (75bp) and 100bp in rate hikes in 2017. The hiking pace implied by money market forward rates has become even more subdued with only two hikes priced for next year and less in 2017. Our projected 3M USD Libor fixings is in line with forwards for the coming three months but, given our expectations for the Fed funds rate path, our forecast for the fixing is well above forwards next year.

USD swap curve 3.0 %

Yield curve

2.5

Mixed economic data in coming months are likely to keep rates in check in the short term. As we move closer to the December FOMC meeting, we see US rates trending higher, most significantly in the short end of the curve (2-5Y rates). The upside to 10-year yields is dampened by the expected announcement of an extension of the ECB QE programme. We project a modest flattening of US curves (2-10Y and 5-10Y) around the time of the first Fed Funds rate hike and generally see rates above forwards across the curve.

1.5

bp 0

-5

2.0

-10

1.0

-15

0.5

0.0

-20 0

3

6

9 12 15 18 21 24 27

Change,bp (rhs)

Source: Danske Bank Markets

3M USD Libor rates

10Y USD swap rates

Source: Macrobond Financial, Danske Bank Markets

Source: Macrobond Financial, Danske Bank Markets

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21-Sep-15

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Yield Forecast Update

UK forecasts Growth and inflation We expect the UK economy to continue to grow at a decent pace in the coming quarters. We expect growth to be driven mainly by domestic demand and, in particular, by private consumption. Private consumption is supported by a combination of higher employment, positive real wage growth for the first time since 2009 and high consumer confidence. The unemployment rate is already more or less back to ‘normal’ and we think that the labour market will tighten further going forward, which would lead to even higher wage growth.

Forecasts summary GBP

Spot

+3m

+6m

+12m

Money market Base rate

0.50

0.50

0.75

1.25

3M

0.58

0.76

0.94

1.32

2-year

0.55

0.85

1.10

1.50

5-year

1.17

1.45

1.70

2.10

10-year

1.83

1.90

2.10

2.40

Monetary policy and the money market

2-year

0.94

1.25

1.50

1.90

5-year

1.42

1.65

1.90

2.30

The Monetary Policy Committee (MPC) remains split with an 8-1 vote on whether to keep the Bank Rate unchanged or raise it immediately. Minutes from the 8 October meeting indicate that most MPC members are not comfortable raising rates with higher uncertainty in the near term. In our view, further improvement in the labour market combined with a pick-up in inflation at the beginning of next year will eventually pave the way for a rate increase in the UK. We still expect the BoE to hike in Q1 16, probably in February, followed by two additional rate hikes next year, taking the Bank Rate to 1.25% by the end of 2016. UK rate hike expectations are currently very subdued with the first full 25bp hike priced in January 2017 and while we see little prospect of higher UK money market fixings in the short term, we expect fixings to increase more than priced in the forward market from three months and beyond.

10-year

1.87

2.00

2.20

2.50

The UK was back in deflation in September as CPI inflation declined to -0.1% y/y, from 0.0% y/y in August. Unless we see a further drop in commodity prices, we think inflation hit the bottom in September and we expect CPI inflation to pick up close to 1% in January 2016, when the base effects from the drop in oil prices in H2 14 begin to drop out.

Government bonds

Swap rates

Source: Danske Bank Markets

GBP swap curve 2.5 %

bp 0

-2

2.0

-4

1.5

Yield curve

-6 -8

1.0

UK yields continued to trend lower in September in tandem with global rates and we have lowered our 1M and 3M interest rates some 5-10bp across the curve. Longer term, we still project substantial rises in UK interest rates driven by Bank of England rate hikes. We have thus kept our 6M and 12M forecast unchanged across the curve, still targeting the 10-year UK swap rate at 2.50% in 12M. As BoE starts to increase the Bank Rate in Q1, we expect the 2-10Y and 5-10Y curves to flatten substantially with interest rates in the 0-5Y segment rising the most. Our three-, six- and 12-month forecasts are above forwards across the curve.

-10

0.5

-12 0

3

6

9 12 15 18 21 24 27

Change,bp (rhs)

Source: Danske Bank Markets

3M GBP Libor rates

10Y UK swap rates

Source: Macrobond Financial, Danske Bank Markets

Source: Macrobond Financial, Danske Bank Markets

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21 October 2015

21-Sep-15

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21-Oct-15

Yield Forecast Update

Denmark forecasts Growth and inflation Lower growth globally is likely to slow GDP growth slightly in Europe and hence in Denmark. Nevertheless, the recovery is still in place, with above-trend growth and rising employment. While global developments pose a downside risk to our growth outlook, we also see a risk of the Danish economy beginning to overheat. Inflation was still just 0.5% y/y in September but we expect significantly higher inflation next year.

Monetary policy and money markets In September, Danmarks Nationalbank (DN) sold DKK22bn of FX to support the DKK. Since April FX intervention has totalled DKK213bn, leaving the FX reserve at DKK514bn. We expect DN to tighten the policy rate spread to the ECB when the FX reserve reaches a level of around DKK450bn. However, the slowing pace of FX intervention in September and EUR/DKK currently below 7.46038 means this could be some months away. We forecast DN will hike the rate of interest on certificates of deposit (CD rate) by 10bp on 3M and another 10bp on 6M to minus 0.55%. The short-term money market interest rate spread to the euro area has already tightened significantly and reached a more ‘normal’ level. If the current spread to the euro area in short-term money-market rates stays at the current level, DN might not have to hike the CD rate as much as we have put in our forecast. Also, if the ECB steps up its bond purchases or cuts its deposit rate, we believe it will ease the need to intervene in the FX market to support the DKK and hike the CD rate.

Yield curve

Forecasts summary DKK

Spot

+3m

CD

-0.75

-0.65

-0.55

-0.55

0.05

0.05

0.05

0.05

3M

-0.06

0.02

0.07

0.07

6M

0.14

2-year

-0.21

-0.20

-0.20

-0.15

5-year

0.13

0.10

0.10

0.20

10-year

0.91

1.15

2-year 5-year 10-year

0.31 0.69 1.33

0.80 0.95 Swap rates 0.25 0.25 0.65 0.65 1.20 1.35

0.20 0.22 Government bonds

0.22

0.30 0.75 1.50

Source: Danske Bank Markets

DKK swap curve 2.5 %

bp 10

5 0 -5 -10 -15 -20 -25

2.0

1.0 0.5

0.0 0

3

6

9 12 15 18 21 24 27

Change,bp (rhs)

21-Sep-15

Source: Danske Bank Markets

3M Cibor rates

10Y DKK swap rates

Source: Macrobond Financial, Danske Bank Markets

Source: Macrobond Financial, Danske Bank Markets

21 October 2015

+12m

REPO

1.5

Danish two-year swap rates have edged marginally lower over the past month but are still above the level seen in Q2, especially as spreads remain wide against the EUR as shortdated CITA rates and CIBOR fixings have been pushed higher by the tighter liquidity and rate hike expectations. 10-year swap rates have edged lower over the past four months but with a spread to the EUR that is now higher than before the currency inflow accelerated in Q1. Even though we forecast two independent Danish rate hikes, our forecasts for 2Y and 5Y rates are still slightly below the forward market. Danish 10Y rates on a 12M horizon are pushed higher mainly on the back of higher EUR and USD rates, though we expect the spread to the EUR to tighten slightly. Government bond issuance was resumed here in October and DKK100bn will be sold in Q4 and 2016 in total. We believe that the resumption of issuance should improve liquidity in the Danish market and support a modest tightening versus EUR yields and swaps.

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+6m

Money market

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Yield Forecast Update

Sweden forecasts Growth and inflation In the past couple of years GDP growth has been driven by domestic sectors thriving on the back of a long-standing property market boom and strong migration inflows. Although with some signs of improvement, the export-oriented manufacturing industry may not come back to its old vigour with recent signs of a weakening global business cycle. That said, employment has been growing steadily with a recent drop in the unemployment rate. The latter appears mainly to be the result of a sudden decline in labour force growth, which is why we do not want to emphasise the improvement yet. Inflation in Sweden has been turning up this year on the back of a weaker SEK, still remaining at levels well below the Riksbank’s target. The prospects for attaining it, however, are very slim as the positive SEK effect fades and the upcoming wage round appears to end in roughly unchanged wage agreements.

Monetary policy and the money market We expect the Riksbank to continue to be under pressure to add stimulus. Firstly, we find the Riksbank’s 2016 inflation forecast quite unlikely. Secondly, the SEK has a tendency to strengthen as soon as the Riksbank abstains from action, in turn posing a threat to the Riksbank. Thirdly, since we expect the ECB to step up monetary stimulus, the Riksbank will have to follow suit. Hence, we expect the repo rate to be lowered by 10bp (to -0.45%) in December if not before, a level we expect to mark the bottom. The current asset purchase programme runs through December, by the end of which the Riksbank will have purchased 135bn or close to 24% of the outstanding stock of nominal bonds. We expect the programme to be extended (probably another quarter) at the current pace.

Forecasts summary SEK

Spot

+3m

+6m

Repo

-0.35

-0.45

-0.45

-0.45

3M

-0.31

-0.40

-0.40

-0.35

2-year

-0.43

-0.55

-0.55

-0.40

5-year

0.10

-0.10

-0.10

0.10

10-year

0.75

0.55

0.65

0.95

2-year

-0.20

-0.25

-0.30

-0.15

5-year

0.48

0.40

0.40

0.55

10-year

1.38

1.20

1.30

1.50

Government bonds

Swap rates

Source: Danske Bank Markets

SEK swap curve 2.5 %

bp 0

2.0

-1

1.5

Yield curve

-1

1.0

Since July the swap curve has traded with a low volatility. On a tactical basis, Swedish rates have lost some ground and a soft Riksbank could help Swedish rates trade down relative to EUR rates. The short end of the yield curves has remained anchored by the (subdued) outlook for the repo rate in the coming years. Thus, as this is set to continue, by and large the yield curves will be driven by what happens in the long end (we do however see some more room for 2Y-5Y to flatten in SEK versus EUR). Swedish long rates will take a backseat to what happens to US and German rates. Overall, over the next 12 months, the SEK yield curve should steepen somewhat if the global recovery stays on track.

-2

0.5

-2

0.0

-0.5

-3 0

3

6

9 12 15 18 21 24 27

Change,bp (rhs)

10Y SEK swap rates

Source: Macrobond Financial, Danske Bank Markets

Source: Macrobond Financial, Danske Bank Markets

21 October 2015

21/09/2015

Source: Danske Bank Markets

3M Stibor rates

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+12m

Money market

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21/10/2015

Yield Forecast Update

Norway forecasts Growth and inflation As expected, growth in the Norwegian economy slowed further in Q2 15, and the short-term outlook is even weaker. The decline in oil investment is now hitting oil-related industries hard, and we are beginning to see signs of second-round effects in parts of the service sector. On the other hand, lower interest rates are helping to keep both private consumption and the housing market moving, the weaker krone is boosting the export industry, and public infrastructure investment is rising rapidly thanks to a continuing expansionary fiscal policy for 2016. Core inflation was 3.1% in August, which is above the inflation target of 2.5%. However, the high reading is mainly due to a weak NOK during 2015 and is seen as temporary. Furthermore, wage generated inflation seems to be on the decline. Wage growth next year is expected to be below 3.0%. i.e. real wage growth is set to be meagre going forward.

Forecasts summary NOK

Spot

+3m

+6m

+12m

Money market ON DEP

0.75

0.75

0.75

0.75

3M

1.13

1.00

1.00

1.00

2-year

0.68

0.65

0.70

0.80

5-year

0.97

0.90

1.00

1.10

10-year

1.62

1.50

1.70

1.90

2-year

1.00

1.05

1.10

1.20

5-year

1.34

1.30

1.40

1.50

10-year

1.93

1.90

2.10

2.30

Government bonds

Swap rates

Monetary policy and the money market Norges Bank cut interest rates at its meeting on 24 September by 25bp to 0.75 % citing risks to the growth outlook and arguing that inflation will only stay high temporarily. The new interest rate path presented in the monetary policy report (MPR) indicates that rates will stay on hold throughout 2015, with an increasing probability of another rate cut, accumulating to 64 % in Q3 2016. However, both domestic and global risks are currently high. Hence, we would not completely rule out a rate cut before year-end, but the signal from the MPR is that we need to see a further weakening of the outlook for a rate cut to materialise. Given our expectations of stronger global growth and a slightly higher oil price in 2016 we believe that Norges Bank has cut rates for last time in this cycle, but the risk is certainly towards further easing in Norway especially as we forecast a stronger NOK in 2016. But all in all, our forecast for 3M Nibor is somewhat above the forward market.

Yield curve

Source: Danske Bank Markets

NOK swap curve 2.8 %

bp 5

2.3

0

1.8

-5

1.3

-10

0.8

-15 0

We will probably see the trough of the 3m Nibor during 2016, which would tend to push 2Y and 5Y rates slightly higher. But the effect from slightly higher EUR and USD rates will also tend to push the long end higher and we continue to forecast a slightly steeper curve 2Y10Y. Our forecast for 10Y rates are slightly above the forward market.

3

6

9 12 15 18 21 24 27

Change,bp (rhs)

Source: Danske Bank Markets

3M Nibor rates

10Y NOK swap rates

Source: Macrobond Financial, Danske Bank Markets

Source: Macrobond Financial, Danske Bank Markets

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21/09/2015

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Yield Forecast Update

Forecasts

NOK

SEK

DKK

GBP

EUR *

USD

Forecast table Horizon

Policy rate

3m xIbor

2-yr swap

2-yr gov

5-yr gov

10-yr gov

Spot

0.25

0.32

0.73

5-yr swap 10-yr swap 1.39

2.01

0.62

1.37

2.05

+3m

0.25

0.52

1.10

1.90

2.25

0.95

1.80

2.20

+6m

0.50

0.69

1.35

2.10

2.50

1.20

2.00

2.40

+12m

1.00

1.25

1.75

2.45

2.75

1.60

2.35

2.65

Spot

0.05

-0.05

0.04

0.35

0.98

-0.24

0.00

0.61

+3m

0.05

-0.04

0.05

0.35

0.85

-0.25

0.00

0.50

+6m

0.05

-0.04

0.05

0.35

1.05

-0.25

0.00

0.70

+12m

0.05

-0.04

0.10

0.45

1.25

-0.20

0.10

0.90

Spot

0.50

0.58

0.94

1.42

1.87

0.55

1.17

1.83

+3m

0.50

0.76

1.25

1.65

2.00

0.85

1.45

1.90

+6m

0.75

0.94

1.50

1.90

2.20

1.10

1.70

2.10

+12m

1.25

1.32

1.90

2.30

2.50

1.50

2.10

2.40

Spot

0.05

-0.06

0.31

0.69

1.33

-0.21

0.13

0.91

+3m

0.05

0.02

0.25

0.65

1.20

-0.20

0.10

0.80

+6m

0.05

0.07

0.25

0.65

1.35

-0.20

0.10

0.95

+12m

0.05

0.07

0.30

0.75

1.50

-0.15

0.20

1.15

Spot

-0.35

-0.31

-0.20

0.48

1.38

-0.43

0.10

0.75

+3m

-0.45

-0.40

-0.25

0.40

1.20

-0.55

-0.10

0.55

+6m

-0.45

-0.40

-0.30

0.40

1.30

-0.55

-0.10

+12m

-0.45

-0.35

-0.15

0.55

1.50

-0.40

0.10

0.95

Spot

0.75

1.13

1.00

1.34

1.93

0.68

0.97

1.62

+3m

0.75

1.00

1.05

1.30

1.90

0.65

0.90

1.50

+6m

0.75

1.00

1.10

1.40

2.10

0.70

1.00

1.70

+12m

0.75

1.00

1.20

1.50

2.30

0.80

1.10

1.90

* German government bonds used, EURswap swaprates rates are used *Note: German government bonds areare used, EUR used Source: Danske Bank Markets

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Disclosures This research report has been prepared by Danske Bank Markets, a division of Danske Bank A/S (‘Danske Bank’). The author of this research report is Arne Lohmann Rasmussen, Chief Analyst. Analyst certification Each research analyst responsible for the content of this research report certifies that the views expressed in the research report accurately reflect the research analyst’s personal view about the financial instruments and issuers covered by the research report. Each responsible research analyst further certifies that no part of the compensation of the research analyst was, is or will be, directly or indirectly, related to the specific recommendations expressed in the research report. Regulation Danske Bank is authorised and subject to regulation by the Danish Financial Supervisory Authority and is subject to the rules and regulation of the relevant regulators in all other jurisdictions where it conducts business. Danske Bank is subject to limited regulation by the Financial Conduct Authority and the Prudential Regulation Authority (UK). Details on the extent of the regulation by the Financial Conduct Authority and the Prudential Regulation Authority are available from Danske Bank on request. The research reports of Danske Bank are prepared in accordance with the Danish Society of Financial Analysts’ rules of ethics and the recommendations of the Danish Securities Dealers Association. Conflicts of interest Danske Bank has established procedures to prevent conflicts of interest and to ensure the provision of high-quality research based on research objectivity and independence. These procedures are documented in Danske Bank’s research policies. Employees within Danske Bank’s Research Departments have been instructed that any request that might impair the objectivity and independence of research shall be referred to Research Management and the Compliance Department. Danske Bank’s Research Departments are organised independently from and do not report to other business areas within Danske Bank. Research analysts are remunerated in part based on the overall profitability of Danske Bank, which includes investment banking revenues, but do not receive bonuses or other remuneration linked to specific corporate finance or debt capital transactions. Financial models and/or methodology used in this research report Calculations and presentations in this research report are based on standard econometric tools and methodology as well as publicly available statistics for each individual security, issuer and/or country. Documentation can be obtained from the authors upon request. Risk warning Major risks connected with recommendations or opinions in this research report, including as sensitivity analysis of relevant assumptions, are stated throughout the text. Date of first publication See the front page of this research report for the first date of publication.

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