A 10-year Treasury yield of 2% or greater has been elusive. Here are the banks that are making their call for 2022.

Large financial firms, such as JPMorgan Chase & Co. and Morgan Stanley, are once again forecasting a 10-year Treasury yield of 2% and above for 2022, supported by expectations of stronger growth in the United States.

Earlier calls to 2% in 2021 were hampered by a year of uneven progress towards recovery following new outbreaks of viruses like the omicron variant, which caused the widely tracked 10-year yield TMUBMUSD10Y,
to languish below 1.65% for much of 2021.

The 10-year yield, which influences the cost of long-term borrowing on everything from mortgages to student loans and credit cards, has not been at 2% since August 2019, repeatedly falling below the level generally associated with a healthy US economy. . Even expectations that the Federal Reserve will launch a faster pace of declining bond purchases next week, in order to have enough flexibility to possibly propose a 2022 rate hike sooner than expected, have not been enough. to sustainably increase the 10-year rate. . Investors typically sell Treasuries, pushing yields higher and prices lower, in anticipation of higher rates.

Morgan Stanley Wealth Management, a division of Morgan Stanley MS,
forecasts a scenario next year that includes “a robust global recovery, moderation in growth and inflation in the United States, and more balanced monetary and fiscal policies,” wrote Lisa Shalett, chief investment officer, in a 2022 perspective published this week.

Even if the Fed postpones its first rate hike until Q4 2022 or Q1 2023, Morgan Stanley “estimates that the 10-year US Treasury yield will be 2.1% by December 2022,” writes- she. It would be more than 50 basis points higher from its level of 1.52% on Wednesday.

The direction of the 10-year rate shift has been debated for some time, with some analysts like Dimitri Delis of Piper Sandler Cos. PIPR,
in Chicago and Richard McGuire of Rabobank warning that yield will continue to decline – as it has in each of the past three or four decades. One reason has been the continued demand by foreign buyers and US corporations for Treasuries, which consistently earn more than the public debt of other countries.

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But expectations about central bank policy also matter, and “the US Federal Reserve has provided the most tangible and imminent indication of take-off,” or the first rate hike, “at this point.” , according to Pacific’s portfolio managers Erin Browne and Geraldine Sundstrom. Investment Management Co., or PIMCO. The company, which managed $ 2.2 trillion in September, expects “government bond yields to tend to rise over the cycle as central banks raise rates.”

Still, they said in an outlook released Tuesday, “the risk of policy error has increased as monetary and fiscal stimulus retreat and authorities attempt to shift growth to the private sector.” This creates the potential for more divergent outcomes, such as an earlier than expected central bank tightening that ultimately hampers growth, or a “virtuous cycle” of greater consumption supported by higher personal savings that “would likely be a boon to economic growth. “

Most treasury yields rose on Wednesday as investors digested news suggesting that the omicron variant of the coronavirus that causes COVID-19 may not impact the economy as much as feared. Rates on 10- TMUBMUSD10Y,
and 30-year Treasury bills TMUBMUSD30Y,
increased, although the 2-year rate TMUBMUSD02Y,
slipped, after a report from Pfizer Inc. PFE,
and BioNTech SE BNTX,
the results of an initial lab study showed their COVID-19 vaccine neutralized the omicron variant of the coronavirus after three doses, or the full two-dose regimen plus a booster.

JPMorgan announces 2022 as the year “of a full global recovery, an end to the global pandemic and a return to normal conditions that we had before the
COVID-19 epidemic, ”according to Marko Kolanovic, chief global markets strategist, and Hussein Malik, global co-head of research with Kolanovic.

“In our opinion, this is justified by obtaining a broad immunity of the population and by the
using human ingenuity, like new therapies expected to be widely available in 2022, ”they wrote in a report released Wednesday.

They said they expect Treasury yields to rise in 2022, with the 2-year rate hitting 0.7% in the second quarter before reaching 1.20% by the end of next year. “In the meantime, we believe the curve may steepen for a short time in early 2022, and we expect 10-year yields to hit 2% by mid-year and 2.25% by the middle of the year. the end of 2022. “

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