(Bloomberg) – Barriers to yields in the world’s largest debt market are being phased out.
The presence of “bears” in the market in early 2021 will probably not be fleeting, and Treasury yields will finally break out of the established ranges and rush to the levels last seen at the beginning of the pandemic. Most Wall Street analysts expect even higher returns given the introduction of vaccines and expectations of companies returning to work and new fiscal stimulus.
The threat of an increase in the cost of borrowing is already hanging over risky assets – from US stocks to securities of developing countries. The rise in yields so far appears to be of no concern to Federal Reserve officials, but traders will watch for signs of concern over long bond rate increases in Jerome Powell’s Congressional comments this week. In the absence of any hints, market participants will make their own assumptions about the levels to which reflationary trading could push bond yields.
“Before the pandemic, the yield on 10-year bonds was about 1.6%, and if we return more or less to the same economic situation as it was at the time, there will be no reason why yields should be below that level,” said Stephen Stanley, chief economist at Amherst Pierpont Securities.
He predicts that the rate on 10-year US securities will reach 2% by the end of the year – the level that was last observed in August 2019.
Abridged translation of the article: The Runway Toward Higher Treasury Yields Looks Free and Clear
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