Analysts Caution 10-Year Treasury Yield Could Hit 5% This Year

The U.S. Treasury market is holding its breath over the movement of long-end yields. Senior strategist Steven Barrow has recently made a more aggressive forecast.

This head of G10 strategy at Standard Bank anticipates that the 10-year U.S. Treasury yield will reach 5% within the year. This figure is about 80 basis points higher than the average expectation of analysts surveyed by Bloomberg.

Since 2007, the 10-year U.S. Treasury benchmark rate has rarely stood above the 5% level. Currently, the rate is hovering around 4.46%, above the 3.94% seen in late February.

The surge in energy prices caused by the unstable situation in the Middle East is reinforcing inflation expectations, making the previously minority 5% forecast gain more credibility in the market. Barrow believes that the Federal Reserve's current monetary policy is still too loose. He also points out that the U.S. government lacks effective control measures on fiscal budget deficits.

Global supply chain squeezes, climate change, and immigration restrictions are driving up costs from the supply side. These structural factors will collectively support bond yields to remain high over a longer period. If yields break through 5%, it will pose a severe challenge to debt sustainability. At that time, global corporate borrowing costs will rise sharply, and may trigger a shift of funds from the stock market to the bond market.

The 10-year U.S. Treasury has not been able to effectively surpass the resistance level of 4.5% this year. This level has a strong psychological implication for traders and often attracts bottom-fishing funds when yields are high. Although some investors hope that AI can improve productivity to support interest rate cuts, Barrow is skeptical about this. He believes that the market often overestimates the long-term inflation-suppressing effect of technological progress.