US Treasuries to benefit from more than just Fed policy

The relatively subdued response of US Treasuries to the outcome of Wednesday’s FOMC meeting underlines the fact that while monetary policy should provide a firm anchor for long-term yields over the next few years, this prospect is already widely discounted. Nonetheless, we still see scope for the ten year Treasury yield to drop to 1.5% this year (from a little below 2% now) as a break-up of EMU triggers a “flight to safety”.