US economy to regain momentum in Q3

Recent data suggest that the US economy is regaining momentum after the weakness in Q1. Fed lift-off will come at the September FOMC meeting, but risks remain skewed towards a later hike (December). 

"The upper end of the fed funds target range at 0.75% by end-2015 and 2.00% by end-2016, in line with the FOMC median projection. Longer US yields have also seen a clear move higher recently, and a further rise is expected from current levels to be more gradual", says Nordea Bank. 

Longer out, a central bank starting to normalise policy and an economy showing increasing signs of price pressures favour higher yields. Still, as recent years have illustrated, the underlying demand for bonds remains strong, so yields are expected to rise only slowly.

"In fact, the drop that is expected to be  seen in German yields in the coming month should support US bonds as well, and in general the subdued Euro-area yields will act as a brake on US yields", says Nordea Bank.