10yr UST rates at year end to be unchanged at 2.35%

The forecast for 10y rates at the end of 2015 remains at 2.35%. The forecast is slightly higher than the implied year end forward rate of 2.33%, but lower than the Bloomberg median forecast of 2.52%. 

"A gradual Fed and low terminal rate in the presence of subdued inflation as well as low global yields will put a lid on high long end rates can go. The first Fed rate hike in September is expected, followed by hikes at every other meeting", says RBC Capital Markets.

One risk to the forecast is the increasing concerns around outflows from China. Lower Chinese Treasury demand as the PBOC uses some of its USD reserve to support RMB.

However, concerns over the slowdown in China's economy are likely to generate some private safe-haven flows to offset the drop in official demand.