After the yield on 10-year US Treasuries surpassed the 1% mark last week, investors are wondering what the future may hold for the maturity of the benchmark. On the one hand, a handful of market participants fear that an aggressive fiscal agenda from the incoming Joe Biden administration could put the bond market on the brink of a disorderly sell-off on the scale of the ‘conical tantrum’ of 2013, but others argue long Treasury bonds are unlikely to see a sharp rise as the Federal Reserve is unlikely to change its pace and scale of asset purchases this year.
This is where the market expects the 10-year US Treasury yield to head next.
Despite the variety of opinions on the ultimate destination of government bond yields, the consensus is that they will ultimately rise as the economy recovers from the coronavirus pandemic with the help of fiscal policy stimulus. and historically large monetary. “The returns will be higher, but not much higher,” said Rob Daly, head of fixed income at Glenmede Investment Management, in an interview. See: US Bond Market Could Face ‘Gradual Tantrum’ Risk After Georgia Senate Runoff, Says Jefferies TMUBMUSD10Y 10-Year Note, 1,114% Is Up 1,187% On Monday, about 26 basis points above where it started at the end of last year, but has since fallen back to 1.09% following a series of successful Treasury auctions earlier this week. Still, this rapid rise over the span of two weeks has led Wall Street banks to scramble to increase their bond yield targets by the end of 2021. The Wall Street Journal’s periodic survey shows that economists on average had a year-end forecast of 1.44% for the 10-year Treasury. Similarly, traders are now targeting 1.5% as a line in the sand that, if exceeded sooner, could cause bond yields to extend their rise. There are two other levels to watch before markets hit that threshold, says Tom Di Galoma of Seaport Global Securities. He pointed to 1.2% and 1.35% as key resistance levels for the 10-year note. However, many were pessimistic that the benchmark bond could exceed that ceiling, as domestic and foreign investors have already shown interest in Treasuries with current yields, judging to buy the success of the weekly auctions to finance the US fiscal deficit, with returns in other developed countries still close to zero. or negative. Senior Fed officials have also signaled that they would maintain accommodative monetary policy for the foreseeable future. Fed Vice President Richard Clarida said the central bank would not raise interest rates until inflation stayed at 2% for a year. HSBC strategist Lawrence Dyer said Wednesday that it would be prudent to take advantage of the recent bond market sell-off, as Treasuries had priced too much tightening relative to Fed authorities’ expectations. Read: The rise of US Treasury yields is a ‘savior’ for income-hungry investors