Rates Spark: Don’t expect a break back below 5%
The desk is projecting that the US 10-year Treasury yield will stabilize above 5%, potentially rising to 5.25%, which signals ongoing upward pressure in the fixed-income market. Per the full note from ING, this outlook reflects a combination of robust economic data such as firm retail sales and persistently high inflation metrics, indicating that Treasury yields are likely to rebuild from their current levels. Meanwhile, the Eurozone grapples with its own economic challenges, particularly stemming from developments in France. With broad expectations for continued yield strength, traders should be prepared for corresponding moves in major FX pairs where these dynamics intersect.
What the desk is arguing
The desk posits that the US 10-year Treasury yield will hold above 5%, potentially advancing to 5.25%. ING highlights a recovering mood in the Treasury market supported by significant buying interest following US economic data releases, particularly after a low jobless claims report and rising inflation readings.
The note indicates that there may be sufficient momentum to push yields higher, especially given the lack of fiscal actions from either political side regarding the deficit. The risk of prolonged high inflation alongside political inertia forms a backdrop that favors this upward trajectory in yields as we approach the mid-term elections.
Where it sits in our coverage
For EUR/USD, our consensus target stands at 1.1700 with a range of 1.1200 to 1.2000. Key firms like rabobank and socgen forecast targets of 1.1759 and 1.1700, respectively, for March 2026, while cibc has a slightly more optimistic view at 1.1866, also for March 2026.
This desk's outlook aligns more closely with the upper end of the market's consensus, which reflects an incremental adjustment as economic indicators increasingly point towards a sustained high yield environment and its downstream effects on foreign exchange movements.
How other firms see it
Aligned firms such as rabobank and socgen share a bullish view on EUR/USD, positioning for potential higher targets shaped by robust rates trajectories. Conversely, firms like tmgm and mizuho show more cautious forecasts, highlighting the divergence in sentiment across the trading landscape.
As we analyze the impact of these Treasury movements, attention should be paid to closely related FX pairs such as USD/JPY and GBP/USD, where the expected US yield increases will likely create ripple effects in their pricing structures moving forward.
How firms align with this view
Aligned with the desk view
Contrary positioning
Key takeaways
- 01US Treasury yields poised to remain above 5%, likely rising to 5.25%.
- 02Robust US economic data supports yield increases, including low jobless claims and high inflation.
- 03Eurozone challenges, particularly from France, may compound USD strength against EUR.
- 04EUR/USD consensus target is predominantly bullish, suggesting market alignment with higher yields.
Market implications
Traders should look for potential resistance levels in EUR/USD around 1.1700, as sellers may emerge against a backdrop of rising US yields. With Treasury yields on an upward trajectory, monitor the USD/JPY pair, which often sees shifts in response to US interest rates.
Risks to this view
A decisive shift in the inflation outlook, notably a sudden dip in reported inflation or a change in job market dynamics, could prompt a reassessment of yield forecasts. Moreover, significant fiscal action from US policymakers aimed at addressing the deficit could also provide unexpected support to bond prices and lower yields.
EUR/USD — All Desk Targets
| Firm | Stance | YE 2026 |
|---|---|---|
Barclays | Bullish | 1.2100 |
Bank of America | Bullish | 1.1500 |
UOB | Bearish | 1.1140 |
Articles Rates Spark: Don’t expect a break back below 5% Published 20:38 Rates Spark Share X LinkedIn E-mail Copy link Share X LinkedIn E-mail Copy link Download We think the US 10yr stays above 5%, and in fact heads back up to 5.25%. That won't help the eurozone, which continues to grapple with the problem that is France. Probably overdone, but far from over Padhraic Garvey, CFA We think the 10-year yield on US Treasuries will remain above 5.00% and head back up to 5.25% The mood for US Treasuries has calmed.
But don't get too comfortable Treasury market moves of late have been quite something. There were buyers in the 5.3% area post the CPI release on Wednesday. Then the Asian open coincided with some large falls in equities, with a particular focus on Korean equities, which prompted some follow-on buying of Treasuries.
Note, however, that there have been decent buyers of Treasuries on an ongoing basis in the past number of weeks. It just has not translated into a meaningful move lower in yields, mostly as it had been offset by net shorts on Treasury futures. We've been overdue a reversal.
That said, we're not convinced this is a structural move, and we'd be quite surprised if we were to break below 5% on the 10yr yield. Treasuries did not react much to Thursday's data, but market participants will be aware that we had another good (low) jobless claims number, retail sales were firm and PPI inflation uncomfortably high. The market will likely use this as a platform from which to rebuild higher in yields over the weeks ahead, and into the mid-terms; especially with neither side voicing an intention to take action on the fiscal deficit.
The issues of high printed inflation and a high deficit remain. The balance of probabilities suggests there is at least one more leg of long-end weakness still to play out. This could take the US 10-year yield back into the 5.25% to 5.5% range.
Other markets would likely move in tandem, mapping out similar, albeit less dramatic, blow-outs. With 5.25% looking like a mean-reversion level, we think the US 10-year yield could overshoot towards 5.5% and remain elevated for a number of months as bond market jitters persist. This could quite easily extend into the first quarter of 2027.
Our views here are unchanged, despite recent moves. The eurozone remains in the throes of an uneasy holding pattern at dodgy levels The focus in the eurozone is increasingly insular, with France front and centre and setting the mood . Here too, there has been some market stability – but at uncomfortable levels.
Sources & References
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