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Treasury yields climb to multidecade highs
The yield on the 10-year U.S. Treasury note rose above 5.36% in intraday trading on the 7th, setting a new high not seen since 2002. The 30-year Treasury yield reached 5.73%, its highest level in 24 years.
Wall Street remains divided over whether yields will continue rising through the end of the year or retreat from their current levels, leaving the bond market unsettled.
Major banks differ on year-end outlook
Bank of America’s official forecast puts the 10-year yield at 5% at year-end. That outlook assumes the Federal Reserve raises interest rates in both October and December, bringing the economy closer to what the bank’s economists consider an equilibrium.
Mark Cabana, Bank of America’s head of global rates strategy, offered a more cautious view. Although the bank’s base case calls for yields to fall, he said the balance of risks currently favors further increases and advised against betting on an immediate reversal.
Goldman Sachs is more optimistic about a decline. William Marshall, the bank’s head of U.S. rates strategy, forecasts the 10-year yield will end the year at 4.75% — nearly 60 basis points below the day’s peak. One basis point equals 0.01 percentage point.
Marshall said underlying inflation pressures remain relatively contained. He argued that much of the current inflation reflects either factors that have already passed, including tariffs, or ongoing developments such as the war involving Iran, and predicted those pressures would ease.
Citigroup strategist Michael Chang said he remains confident in a 5% year-end forecast for the 10-year yield and sees the 30-year yield potentially declining to 5.3%. He described the market as experiencing a limited “buyers’ strike,” which could keep yields away from levels justified by fundamentals for longer than usual. Over the medium term, however, he expects yields to move lower toward fair value.
Barclays raises its longer-term forecast
Barclays Capital has raised its forecast for the 10-year yield in the third quarter of next year to 5.25% from 5%. Anshul Pradhan, the firm’s head of U.S. rates research, said he sees little reason for yields to fall below 5% as long as the U.S. economy remains resilient.
Pradhan said markets currently appear to price the long-term neutral interest rate at about 3.5%. If U.S. productivity proves stronger than expected over time, he said investors may reassess long-term rates at higher levels, potentially pushing the 30-year yield to 6% or raising its estimated fair value to roughly that level.
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