- Rates: Reprieve amidst lower oil04 May 2026
- Uncertainty Holds24 Apr 2026
- Rising Risk of Stagflation17 Apr 2026
We have lifted our yield projections for G3 government bonds over our forecast horizon. Much of this is due to our view that military / fiscal spending will be ramped up meaningfully as governments assess the ramifications of the US-Iran conflict. Geopolitical uncertainties have already prompted the Eurozone to step up on spending over the past few years. Energy and military security worries have hit the region hard twice (Ukraine-Russia war and more recently, the Middle East conflict). With indications that Trump may not be as keen on NATO, the timeline for enhanced miliary spending (EUR 800bn) over the coming few years may need to be frontloaded or even upsized. We also note that 10Y German yields easily broke through resistance at 3% and the bias remains firmly on the upside.
Similar arguments can be made for Japan, which is already burdened with high social security and debt servicing issues. PM Takaichi is also recently pushing to revise Japan’s constitution to remove the legal constraints on military expansion. Between the energy price shock and military security concerns, it does feel like more fiscal spending is needed even as the BOJ tried to keep short-term rates relatively anchored. 10Y yields would likely come under upward pressure (2.5% has already been breached). That said, we suspect that the ultras (30-40Y with yields close to 4%) are already sufficiently priced.
Fiscal concerns would likely return for USTs putting upward pressure on long end yields (Quarterly refunding will be critical to watch this week). Between tariff refunds, potential upside in spending ahead of the mid-term elections in November amidst a still-wide budget deficit makes for some caution. Moreover, there is a decent chance that the Middle East conflict may have regalvanised interest to diversify away from USD assets, providing a second kick after Liberation Day. Aside from these dynamics, we also note that hyperscaler capex requirements (USD 700bn in 2026) would likely add a lot of duration into the market over the coming few years.
Even as stresses from the Middle East conflict eases, we doubt that there is leeway for G3 central banks to ease (our base case is for an extended Fed and ECB hold with BOJ still normalizing). We think that fiscal worries could be the next theme, triggering some repricing in the long-end of G3 curves. Our HKD rates forecasts have been tweaked accordingly. However, we kept SGD rates largely unchanged on the back of flush SGD liquidity and haven demand. 
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- Rates: Reprieve amidst lower oil04 May 2026
- Uncertainty Holds24 Apr 2026
- Rising Risk of Stagflation17 Apr 2026
- Rates: Reprieve amidst lower oil04 May 2026
- Uncertainty Holds24 Apr 2026
- Rising Risk of Stagflation17 Apr 2026