Rates Spark: Why 4.75% is a natural fit for the 10yr yield
The desk currently anticipates that the US 10-year Treasury yield will stabilize within the range of 4.5% to 5%, as highlighted by the recent analysis by ING. Per the full note, this target aligns with a simplistic assessment that combines core personal consumer expenditure inflation at 3.3% with GDP growth of 1.5%, resulting in a nominal growth estimate of 4.8%. This figure serves as a benchmark for the yield, suggesting that yields toward this level could represent fair value in the current economic landscape. As we approach the upcoming Jackson Hole Symposium, wherein market participants will look for insights into the Fed's future policy, the firm’s analysis implies more prolonged pressure on long-end yields is likely after the event.
What the desk is arguing
The desk anticipates the US 10-year Treasury yield will settle between 4.5% and 5%, according to recent insights from ING. This particular range aligns closely with the nominal growth figure derived from current inflation and GDP growth rates, suggesting a fair value for the 10-year yield is around 4.8%.
The data indicates that the increased fiscal deficit, currently estimated at around 6% of GDP, further supports the notion that yields could be pushed upward. Furthermore, the Treasury's decision to significantly increase its long-end buyback program also reflects an intention to provide liquidity in anticipation of potential market volatility as we near the Jackson Hole Symposium.
Where it sits in our coverage
Our current consensus for EUR/USD sits at 1.1700 for March 2026, with a range from 1.1200 to 1.2000. Specific firm targets include: - ING: Mar26 1.1700, Jun26 1.1800, Dec26 1.1800 - RBC: Mar26 1.1600, Jun26 1.1700, Dec26 1.2000 - Morgan Stanley: Mar26 1.2000, Jun26 1.2300, Dec26 1.1600
This analysis aligns closely with the broader market sentiment, placing our expectations within the range of most firms' targets, suggesting no significant deviation or conflict in the outlook.
How other firms see it
In general, firms including UBS and Danske Bank echo a similar sentiment with forecasts around 1.2000 by March 2026, reinforcing the likelihood of stable ECB policies impacting the currency pairs. Contrarily, firms such as HSBC and Nomura adopt a more bearish view, projecting lower targets around 1.1000 for the same period.
The scrutiny on the EUR/USD trajectory is particularly relevant, as it mirrors the progress on the ECB's rate path, aligning with where the 10-year yield is expected to head in the wake of Fed signals.
How firms align with this view
Aligned with the desk view
Contrary positioning
Key takeaways
- 01US 10-year Treasury yield expected to stabilize between 4.5% and 5%.
- 02Projected yield level of around 4.8% corresponds to inflation and GDP growth data.
- 03Increased fiscal deficit pressures may lead to upward adjustments in Treasury yields.
- 04Recent Treasury buyback strategies signal liquidity support, especially before key economic meetings.
Market implications
Market participants should monitor the stability of the 10-year Treasury yield around 4.8% as an indicator of potential future movements in major currency pairs like EUR/USD. The Jackson Hole Symposium on Friday may provide insights that impact market sentiment and yield dynamics significantly.
Risks to this view
Should the Jackson Hole Symposium yield unexpected dovishness from the Fed or stronger-than-expected growth indicators, this could exert upward pressure on yields. Alternatively, if inflation data begins to show signs of a sustained decrease, this would weaken the case for a 4.5%-5% yield range.
EUR/USD — All Desk Targets
| Firm | Stance | YE 2026 |
|---|---|---|
ING | Bullish | 1.1800 |
UOB | Bullish | 1.1800 |
Rabobank | Bullish | 1.1800 |
Articles Rates Spark: Why 4.75% is a natural fit for the 10yr yield Today, 17:00 Rates Spark Share X LinkedIn E-mail Copy link Share X LinkedIn E-mail Copy link Download We've had the opening salvo from the US Treasury, and so far so good. Long-end yields are down and swap spreads tighter. But it's no game changer, as the underlying pressures remain.
Friday's Jackson Hole Symposium offers a nice distraction. But post that, as the realisation dawns that we're none the wiser on the Fed, long-end pressure is primed to re-build Padhraic Garvey, CFA and Michiel Tukker We see the US 10yr yield staying in the 4.5% to 5% range for now Mapping 4.5% to 5% as the key extremity bands for the 10yr yield We got core personal consumer expenditure inflation for July, running at 3.3% YoY. We also got confirmation of GDP growth running at 1.5%.
Simplistically, add the two together and we get 4.8%. Traditionally, a nominal growth number like this would have a reasonable relationship with the level of Treasury yields. And the thinking is that it provides a better guide for longer tenor yields (like the 10yr yield), as shorter ones are bossed more by where the Fed pitches the funds rate.
That simple 4.8% level is relevant, as it can be deployed as a plain relative value reference for the 10yr yield. The thinking could be that anything around that yield could be construed as representing fair value, or at least the starting point for a conversation on where fair value might be. Add an approximately 6% fiscal deficit as a percent of GDP, and the fair value level would be to the upside of that.
Ballpark, a 5% 10yr yield would not be a crazy level. The US Treasury decided to "more than double" the size of long-end buybacks with the 10yr yield at 4.7%, which is in the same region, but obviously lower than 4.8%; and 5%. Part of the logic was to support liquidity through the thin August period.
But the buybacks commence on 9 September. Hence, there is little doubt that the buybacks are being undertaken predominantly as a curb to the rising long-end yields threat. And in fairness, the Treasury Secretary did make direct reference to this.
The complicating factor, however, is we were hardly at unruly levels of long-end yields. Our back-of-the-envelope numbers suggest the 4.7% level is not too deviant from fair valuation levels given current circumstances. We're now down at 4.65%, so the Treasury Secretary, no doubt, is pleased so far.
Moreover, the 30yr swap spread is tighter by 6bp, which represents an absolute richening of the 30yr yield versus the 30yr risk-free rate (SOFR). But this game is far from done. Similar to the recent yen intervention, the underlying forces that prompted it have not been dealt with.
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