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23 Oct 2020 – Insights

No end in sight: Long yields low for long


Interest rates kept low by financial uncertainty and central bank policies could fall even further amid new COVID-19 lockdown measures and uncertainty. 

Risk appetite and investor optimism on the financial markets are back with rallying stock markets and narrowing credit spreads following a setback in September. 
With such sentiment, one would normally expect long yields to start an upward trajectory, says Chief Analyst at Danske Bank, Arne Lohmann Rasmussen. Instead yields on long dated European bonds have been falling, despite a slight uptick in the US. 



”The modest increase in US long yields has had little effect on European yields. The 10-year Bund yield has moved below -0.60% in October - the lowest level since March, says Chief Analyst at Danske Bank, Arne Lohmann Rasmussen. 

Fear of a second wave of  COVID-19
Expansive bond buying operations by the European Central Bank has helped drive European yields lower but concerns of a major second wave of COVID-19 also weighs on sentiment with fears of lockdowns and restrictions as infection numbers move in the wrong direction. 

As the global economy presumably begins to escape from its COVID-19 shackles in 2021, we expect the market to bring forward the first rate hike a little. But we also see a possible scenario in which yields decline in coming quarters compared with current levels.

Arne Lohmann Rasmussen

Chief Analyst, Danske Bank


This could keep yields low in the coming months or drive them even lower, says Arne Lohmann Rasmussen. 

“If infection numbers deteriorate further in coming months or economic data disappoint, we should likely expect additional downward pressure on long yields in both Europe and the US. Downside is probably greatest for US yields, but even German yields could fall further from current levels”, he says, adding that a coming ECB meeting on 29 October may reveal if the ECB decides to easy monetary policy even further”. 

Either way, the yield curve will be closely linked to the evolving COVID-19 situation.

“As the global economy presumably begins to escape from its COVID-19 shackles in 2021, we expect the market to bring forward the first rate hike a little. But we also see a possible scenario in which yields decline in coming quarters compared with current levels. The recovery could be slower in coming and inflation could remain very low, especially in the Eurozone. 

See full analysis Yield Outlook Uncertainty and central banks set to anchor long yields