Central bank liquidity provision

The combination of less monetary
stimulus and an increasingly expansionary fiscal policy has driven up yields recently. In fact, this year the aggregate
budget deficit of the three major developed economies (US, euro area and Japan) might exceed the total of (net) securities
purchases by the central banks for the first time since 2014. A higher supply of (and declining demand for) government
bonds, persistently healthy growth and expectations of rising inflation should continue to exert upward pressure on long-
term yields in the US and Europe.

We expect 10Y government bond yields to rise to 3.25% in the US and 1.25% in the
euro area by the end of the year. The most significant risk for such forecasts is obvious: once market repricing has started,
it might develop its own momentum, and yields might rise considerably further.