US 10-year Treasury yield to trade near 5%, with risks tilted higher
TLT•Bond strategists polled by Reuters expect the 10-year Treasury yield to be near 5% in coming months, with nearly 80% saying it is more likely to finish above than below their three-month forecast. Median forecasts put the yield at 5.00% in three months and 4.96% in six.
1. Yields rebound toward 5%
The 10-year Treasury yield rose to around 5% on Tuesday after falling nearly 50 basis points from its early October peak of 5.36%. The two-year yield jumped about 20 basis points to 4.75%, narrowing the gap between two- and 10-year yields by about 15 basis points in the past week.
2. Forecasters see upside risks
In a November 9-11 poll, median forecasts put the 10-year yield at 5.00% in three months and 4.96% in six months, broadly unchanged from October. Twenty-three of 30 strategists said the yield was likelier to end above their three-month forecast than below it. Strategists still expect yields to decline over the next year, with medians of 4.75% for the 10-year and 4.33% for the two-year.
3. Supply adds pressure
The Treasury’s borrowing plans signalled no let-up in debt issuance, leaving short- and intermediate-dated securities to absorb a greater portion of the government’s borrowing needs. Morgan Stanley Investment Management’s Kelley Gerrity said heavy supply means private investors must absorb more long-term debt as the Fed has “predominantly...stepped away”.
