T. Rowe Price has raised the prospect of 10-year US Treasury yields reaching 6% for the first time in more than two decades, citing worsening fiscal conditions and potential economic impacts of Donald Trump’s proposed policies. Arif Husain, Chief Investment Officer for Fixed Income at the firm, pointed to persistent budget deficits, anticipated tax cuts, tariffs, and immigration policies as factors that could keep inflation elevated and push yields higher.
Husain forecasted that yields may initially touch 5% in the first quarter of 2025 before moving toward the 6% threshold. In a report, he described the US political transition period as an opportunity for investors to position for rising long-term Treasury yields and a steeper yield curve. T. Rowe Price, overseeing $187 billion in assets, is maintaining its bearish outlook on Treasury securities, citing the strain of Washington’s fiscal policies on bond markets.
The outlook coincides with growing investor concerns about the implications of Trump’s second-term proposals, particularly their inflationary impact. These developments come as markets await the Federal Reserve’s upcoming policy statement, which could provide further clarity on the direction of interest rates following an expected rate cut.
The 10-year Treasury yield, which serves as a benchmark for mortgage and corporate borrowing costs, remains steady around 4.40% in Asian trading. This follows its climb to 4.74% earlier in the year. The yield last hit the 6% level in 2000, highlighting the rarity of such a projection. T. Rowe Price’s outlook is notably more pessimistic than those of other institutions. ING Groep NV predicts the 10-year yield could test between 5% and 5.5%, while Franklin Templeton and JPMorgan Asset Management view 5% as a plausible peak.
Husain’s prior predictions have proven prescient, with his team outperforming consensus in 2022. During that period, their Dynamic Global Bond Fund posted gains despite rising interest rates, a period marked by the Federal Reserve’s aggressive policy to combat inflation. Adding to the bearish case for Treasuries is diminishing global demand. Japan, the largest foreign holder of US sovereign debt, offloaded a record $61.9 billion in the third quarter of 2024.
Similarly, China, another key investor, sold $51.3 billion during the same period, marking its second-largest divestment on record. This decline in foreign interest has contributed to market volatility, further undermining Treasuries’ appeal among investors. Husain downplayed the likelihood of a US recession, arguing that the Federal Reserve has successfully orchestrated a “soft landing” for the economy. With robust economic conditions and inflation pressures expected to persist, Treasuries may face additional headwinds, potentially pushing yields to historic highs. – By MENA Newswire News Desk.