Major Banks Warn US 10-Year Yields to Remain High Despite Oil Price Drop
JPM•Bond strategists at major banks warn that US long-term yields may remain at multi-year highs even if oil-driven inflation from the Iran conflict subsides. They cite surging real yields, expanding public debt, the AI investment boom and potential Fed rate hikes as key factors sustaining borrowing costs.
1. Warning on Long-Term Yields
Bond strategists at Barclays, Goldman Sachs and ING warn US long-term yields may stay near multi-year highs even if oil-driven inflation from the Iran conflict eases.
2. Underlying Drivers
They identify rising real yields that strip out inflation, escalating public debt burdens projected to increase borrowing costs, and the AI investment boom as key forces sustaining higher rates.
3. Breakeven Inflation Measures
US 10-year breakeven inflation rates remain about 50 basis points below early 2022 levels, while the 5-year, 5-year breakeven rate stands near 2.2%, indicating muted medium-term inflation expectations relative to overall yields.
4. Yield Curve Sensitivity
Economists at Bank of America note that a potential Fed rate hike path and rising debt servicing costs could make the long end of the curve more sensitive to shifts in short-term rates, affecting the gap between long and short yields.
