Capital Economics: T-bills to yield 1.5% into 2013

Capital Economics has lowered its year-end forecast for 10-year US treasury and UK gilt yields in light of a deteriorating growth outlook.

The macroeconomic research group said it now believes 10-year T-bills will yield 1.5% by the end of 2011, down from a previous forecast of 2%, and will remain at this level "through 2013". It expects bond prices to remain supported not just by lower growth, but also the prospect of lower inflation. John Higgins, senior markets economist, said: "There was, and still is, scope for a big decline in breakeven inflation rates, which remain far higher than the last time the 10-year yield was around 2%." He also pointed to signs the Federal Reserve's thinking is moving away from a third r...