Frognosticating 10y yields

Investing Strategies Bonds & Fixed Income Investments
1

An excerpt from Bloomberg’s the Weekly Fix of Dec 9th:

“Yields on 10-year Treasuries should soar to between 4.25% and 4.75% through early 2023, in the eyes of Wells Fargo macro strategist Erik Nelson. The logic is that for the Federal Reserve to successfully drag inflation lower, so-called real yields need to rise — meaning nominal rates need to move dramatically higher as well.”

Apparently this analyst is one of the lone bond bears at current. That said this seems like a good baseline for 10y rates, as in, nothing lower than this by a substantial margin would make a compelling purchase opportunity.

2

There is an internal inconsistency here. “Dramatically higher” and “4.25% - 4.75%” contradict each other. Not to mention that just a few weeks ago, the 10-year already traded at around 4.25%.

3

“Given that 10-year Treasuries are currently yielding about 3.5%, there’s a lot of daylight between here and 4.75%.”

(another part of the same article. ymmv)

4

3.5% to 4.75% isn’t dramatically higher in an environment of fighting against 7%+ inflation.

Dramatically higher is moving from 0.6% (Aug-2020) to 4%+ (Oct-2022).

5

In terms of the cost of Treasury debt service, it’s huge.

6

It doesn’t seem like much, does it? Yet 4.75% is 36% higher than 3.5%.

Just tossing in a different perspective…