Tags: Poll | US | Treasury | Yields | Rebound

Poll: US Treasury Yields Poised to Rebound

Tuesday, 23 Nov 2010 10:55 AM

Benchmark U.S. Treasury debt yields probably troughed last month and are set to climb significantly when economic growth accelerates and the Federal Reserve ends its asset purchase program, a Reuters poll showed on Tuesday.

Yields on 10-year Treasury notes will climb only marginally to 2.90 percent in six months' time from close to 2.78 percent currently.

But benchmark yields will then jump to 3.40 percent in 12 months, according to the median forecast of more than 40 bond strategists and analysts polled by Reuters.

The U.S. economy should be showing a little more zip by the time the Federal Reserve's latest program of quantitative easing — under which it is buying an additional $600 billion of Treasury debt — winds up in the middle of next year, and rates should drift higher, the poll found.

"You are going to see growth gain some modest momentum and as the economy starts to gain this momentum it will be very difficult for the Fed to justify any additional asset purchases beyond what they have already put in place," said Tom Porcelli, senior market economist at RBC Capital Markets in New York.

"In the absence of another round of quantitative easing it is going to be very difficult to keep 10-year yields down, so it is not really surprising that most people have yields rising over the course of the year," Porcelli said.

A similar poll conducted in late September put 10-year Treasury yields at 2.80 percent in six months, while the 12-month outlook at that time was for a yield of 3.20 percent.

The three-month outlook in the end of September poll was for 10-year yields of 2.70 percent and it is little changed now three months on in the latest poll, at 2.75 percent.

The vast majority of respondents in Tuesday's poll said 10-year note yields reached a trough in early October when they dipped to 2.33 percent, the lowest since January 2009 in the immediate fallout from the worst of the global credit crisis.

Moderate Trend Higher

Benchmark yields are not the only ones expected to rise.

Strategists also forecast two-year note yields to climb next year as investors gear up for the Fed to eventually raise base interest rates from the current level near zero, where they have remained for nearly two years.

The median of forecasts from the economists polled was for two-year rates to rise from 0.50 percent in three months to 0.65 percent in six months and 1.03 percent in 12 months. Two-year Treasury notes currently yield about 0.48 percent.

"I'd expect some volatility in U.S. interest rates, but a moderate trend higher. Economic growth should be lackluster-to-moderate in the first half, picking up in the second half of the year," said Scott Brown, chief economist at Raymond James.

A Reuters poll of U.S. primary dealers — the 18 large financial institutions who do business directly with the Fed — conducted earlier this month found most do not expect the Fed to boost interest rates before the end of 2011.

Rates at the very short end of the U.S. Treasury curve are also expected to rise, but not until well into next year.

The median forecast for three-month Treasury bill rates at 0.15 percent in six months compared with 0.15 percent currently, then rising to 0.29 percent in 12 months.

© 2017 Thomson/Reuters. All rights reserved.

   
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Benchmark U.S. Treasury debt yields probably troughed last month and are set to climb significantly when economic growth accelerates and the Federal Reserve ends its asset purchase program, a Reuters poll showed on Tuesday. Yields on 10-year Treasury notes will climb only...
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2010-55-23
Tuesday, 23 Nov 2010 10:55 AM
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