While predicting that the Fed will lift interest rates by 50bps in 2017, McKenzie sees a very different scenario playing out elsewhere.
“In contrast in the eurozone, low core inflation and ample economic slack should drive an extension and loosening of the parameters governing asset purchases but we see less chance of further rate cuts,” he says.
“Japan is also likely to see additional monetary stimulus, while the UK should keep rates on hold in the face of higher inflation.
“Overall, while short term signals point to higher yields, we expect the combination of accommodative monetary policy globally and a reassertion of secular forces will keep a lid on government yields in 2017.”
