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Will we see US 2-year yields at 1% by the end of next year?

Citigroup says that is certainly a possibility

The firm’s senior technical strategist, Shyam Devani, argues that 2-year Treasury yields may slide to 1% (currently 1.80%) by the end of 2020 as the Fed delivers a succession of interest rate cuts to counteract slowing economic growth in the US.

He argues that:

“We’re at a point where we’re weighing whether the Fed will cut for insurance or if they’re entering a period of structural, cyclical downturn in interest rates – I’m leaning more towards the latter… I wouldn’t be surprised if we see two-year yields dropping to 1% by the end of next year.”

As for the firm’s forecasts on the Fed this year, they’re penciling in a 25 bps rate cut this month followed by potentially two more cuts before the end of the year. Citing that “the Fed could cut well into next year as inflation expectations remain low amid a global slowdown in growth and commodity prices remain weak”.

In the context of currencies, if US yields threaten to plunge towards levels mentioned above, we could easily see USD/JPY head back towards 100-105 at the very least given how closely related the pair is to yields in the wake of the Fed shifting to a more dovish monetary policy stance in recent months:

USD/JPY vs Yields

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