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(Bloomberg) – 10-year Treasury yields (^TNX) could rise to 6% for the first time in more than two decades, according to T. Rowe Prices, as fiscal problems worsen in the U.S. and Donald Trump’s policies help keep inflation high.
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The benchmark yield could initially reach 5% in the first quarter of 2025 before potentially rising further, Arif Husain, chief investment officer for fixed income, wrote in a report. Husain is doubling down on his calls for higher yields, citing persistent U.S. budget deficits as Trump cuts taxes during his second presidency, as well as possible tariffs and immigration policies that would maintain price pressures.
“Is a 10-year Treasury yield of 6% possible? Why not? But we can consider that if we go beyond the 5%,” wrote Husain, who helps the asset manager manage $187 billion. “The US policy transition is an opportunity to prepare for rising longer-term Treasury yields and a steeper yield curve.”
The outlook for Treasuries is becoming increasingly bleak as traders prepare for Trump’s proposed measures designed to boost inflation and increase the fiscal burden on Washington. Investors will comb through the Federal Reserve’s policy statement on Wednesday to gauge how much more interest rates could fall after the U.S. central bank made an expected quarter-point cut this week.
The 10-year Treasury yield, which influences pricing of everything from corporate bonds to mortgages, was little changed at 4.40% in Asian trading on Tuesday. At the beginning of the year it rose to as much as 4.74% and last reached 6% in 2000.
Husain’s vision of a 6% return seems even more pessimistic than that of some of his colleagues. ING Groep NV said the 10-year yield could rise to 5% to 5.5% next year, while Franklin Templeton and JPMorgan Asset Management said 5% was possible.
In the company’s mid-year 2022 market outlook, Husain said yields would continue to rise in the medium term and suggested investors should consider increasing bond exposure “over the next few quarters.”
According to Husain, falling global demand for government bonds is also a bad sign for their prospects. Japan, the largest foreign holder of U.S. Treasury bonds, sold a record $61.9 billion in securities in the third quarter. China, another big holder, offloaded $51.3 billion during the same period, the second-largest sum in its history.
“Anecdotally, government bonds have become more volatile than other high-quality developed market government bonds – and even some emerging market government bonds – which may deter some investors,” wrote Husain, a nearly three-decade market veteran.
