NEW YORK Jan 5 Benchmark U.S. 10-year Treasury
yields will climb to 3 percent at the end of 2017 as investors
demand higher compensation in anticipation of a pick up in
business activity from possible fiscal programs under a Trump
administration, Credit Suisse analysts said on Thursday.
The possibility that the Federal Reserve would raise
interest rates up to three times in 2017 would propel bond
yields higher from current levels, they said.
"It will therefore take some combination of an increase in
real and inflation risk premia, and a rise in inflation
expectations to push nominal yields higher. Expectations for
the terminal rate may also increase as markets price a Fed
response to rising inflation," Credit Suisse analysts Praveen
Korapaty, William Marshall and Jonathan Cohn wrote in a research
Bond yields around the world rose sharply following Donald
Trump's surprise U.S. presidential win on Nov. 8. Investors
dumped bond holdings on the notion that Trump's proposed
economic policies, including tax cuts, infrastructure spending
and looser regulations, would result in higher inflation and
A vicious five-week selloff slashed about $2 trillion in
value from bond markets around the world, as investors
reallocated from fixed income to stocks and other assets. During
that time, the U.S. 10-year yield reached 2.64
percent, its highest since September 2014.
Perception that the Fed might raise interest rates at a more
aggressive pace than previously thought due to faster growth and
inflation from possible fiscal stimuli further reduced bonds'
Since mid-December, bond yields have retreated on
bargain-hunting and as traders await details on Trump's fiscal
programs. The U.S. 10-year yield on Thursday eased to a
one-month low of 2.37 percent.
"We expect a brief respite, followed by a resumption in the
selloff in fixed income as the details of the Trump economic
agenda become clearer," the Credit Suisse analysts said.
They expected the 10-year yield would advance to 2.8 percent
in the end of the first half and reach 3.0 percent by year end.
They projected the two-year Treasury yield would
rise to 1.45 percent in the first half and 1.80 percent at the
end of 2017.
(Reporting by Richard Leong; Editing by Meredith Mazzilli)