‘Hey, Where’s My Yield?’: UBS, BNP See 10Y US Yields Tumbling To Just 1% As Growth Slows

“Hey, where’s my yield?”, BNP asks, in the title of their Q4 global outlook piece.

Generally speaking, the bank’s forecasts for the remainder of the year reflect a downbeat take on the prospects for growth and trade in an environment rife with uncertainty.

“Our DM and EM growth forecasts remain below consensus, even though consensus has come down significantly this year”, the bank writes. Specifically, BNP sees growth slowing “further below” 3% next year. Naturally, export-reliant economies are projected to suffer the most.


Note that the bank’s outlook for global growth both for 2019 and 2020 is well below that of the IMF, whose own forecasts are the lowest since the crisis.

As of the July update, the IMF saw the global economy expanding 3.2% in 2019, down from 3.3% in April and 3.5% in January. The outlook for 2020 was cut to 3.5% from 3.6% three months previous. It was the fourth time the Fund had slashed its outlook in the space of nine months.

If you ask BNP, global rates will either drop or, at best, “remain close to current lows”.

Developed economies will continue to face the prospect of “Japanification” and that, in turn, means “central banks [will] react with more easing”. The bank sees the ECB delivering “a package announcement including rate cuts with tiering and QE”, while the Fed will cut rates four more times “by mid-2020”.

Unsurprisingly, BNP is concerned about the potential for the global factory downturn to bleed over into the services sector and, eventually, the labor market. “The slowdown in manufacturing and trade has proved to be deeper and more prolonged than expected”, the bank laments, cautioning that “there is increasing evidence that this weakness is spilling over”.


Their Q4 forecast for US growth is particularly worrisome. The bank sees the US economy growing at just a 0.9% annualized rate from October through December and they believe the Fed will remain somewhat reluctant to ease aggressively. That means more flattening pressure on the curve.

“As we do not expect the FOMC to cut aggressively this year (we forecast a 25bp cut in September and another 25bp in December), we expect the market to trade ahead of Fed expectations with a long-end led rally”, BNP says, on the way to predicting that 10-year yields in the US will fall to just 1% by the end of this year.

“The increasing number of negative-yield bonds elsewhere in the world and the drop in FX hedging costs are likely to support demand for Treasurys even as yields decline”, the bank goes on to muse.

They also say that while falling real rates would support risk assets (e.g., stocks) all else equal, this is a time when all else is not, in fact, equal. “In our opinion, whilst a fall in real rates is supportive for risky assets, current economic and financial conditions are less supportive, where bonds will benefit”, the bank says.

Meanwhile, UBS slashed their year-end outlook for 10-year US yields to 1% as well. “This revision reflects our lower global growth forecasts in particular the downgrades to the US, China and Europe”, the bank’s Chirag Mirani writes. They see benchmark yields stateside ending 2020 at just 1.25%.


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