In recent weeks, the bond market has seen another hawkish lurch.  Economists at ABN Amro look at the drivers of the move so far and make an assessment of whether the rise in yields can be sustained.

What is going on in the bond markets? 

Given the recent economic development in both the US and EZ, with core inflation slowing down, labor market deteriorating, and intensification of financial tightening, an economic slowdown is on the cards.

Weaker economic activity is indeed likely to weigh on short term rate expectations which will push the 10Y yield lower in turn. 

Therefore, we judge that the market should reflect better this economic outlook once the higher-for-longer theme subsides and thus will be supportive of lower rates.