(Bloomberg) — The rally in Treasuries has plenty of gas left in the tank, with 10-year yields on course to fall to record lows by year-end, according to Germany’s second-biggest bank.
This week’s Federal Reserve conference on policy tools and strategy made clear the U.S. central bank won’t be keen to preserve ammunition when presented with a looming economic downturn, according to Christoph Rieger, head of rates and credit research at Commerzbank AG. The Fed will therefore be aggressive in easing, he said.
“Once the Fed begins easing, however, the market will not stop there,” Rieger wrote in a note to clients Thursday. “It should account for a scenario of more aggressive pre-emptive steps, which looks set to take U.S. Treasury yields to record lows.”
Rieger sees 10-year Treasury yields tumbling to 1.25% by year-end, a drop of almost a percentage point from the current level of 2.12% as of 10:19 a.m. in London. He predicted 10-year German bund yields will go to negative 0.4%, compared with about minus 0.24% now.