"In the US, a moderate expansion is underway. All items CPI inflation will be about 2% this year and next, but core inflation will be lower. Real GDP growth is expected to be 3.1% this year and 3.7% in 2011. This forecast will keep the yield on the 10-year Treasury note in a trading range this year, mostly between 3.5% and 4.0%. Next year, yields will rise along with the expected Fed tightening,” Karl said.
“The expansions in Europe and Japan remain fairly weak, but China is booming and has begun a series of policy measures to moderate growth. Real GDP growth in Euroland, the UK and Japan is forecast to be 1.3% this year in all three economies. Government bond yields in Europe will mostly be in a trading range in 2010, with - for example - the German10-year government bond yields between 3.1% and 3.5%, because the data will be mixed and the monetary authorities are on hold. The major central banks are expected to launch a coordinated monetary tightening late this year/early next year with the ECB leading the way. By year-end, the government bond yields will be about 3.5% in Germany, 3.7% in France and higher in the UK at 4.4% due to inflation concerns. In Japan, yields on the 10-year government bond will remain low, ending the year at 1.4%. The dollar is expected to stay fairly steady against the euro, the pound and the yen. At mid-year, the Chinese authorities are projected to begin a very modest appreciation of the renminbi,” added Karl.