Franklin Templeton anticipates that the yield on the 10-year U.S. Treasury bonds could reach 5% or higher as the U.S. government increases debt issuance to cover its massive budget deficits. Sonal Desai, Chief Investment Officer of Franklin Templeton's Fixed Income Group, mentioned in an interview that a yield between 4.5% to 5% is reasonable. If investors witness a significant expansion in the U.S. deficit, the benchmark Treasury yield could potentially exceed 5%.
Desai, along with financial experts from JPMorgan Asset Management and T. Rowe Price, have warned that U.S. Treasury yields might rise as investors evaluate how the bond market might react to potential political changes. Since the election, U.S. Treasury movements have been volatile as traders consider the Federal Reserve’s potential response to an expanding federal budget deficit.
Open interest data reveals that traders are taking positions that could benefit from further declines in U.S. Treasuries, in anticipation of inflationary policies. The U.S. Consumer Price Index (CPI), scheduled for release soon, could provide further impetus for short sellers if it shows faster-than-expected growth.
Recently, the 10-year Treasury yield stood at 4.42%, up from the closing rate of 4.27% on election day. It briefly surged to 4.48%, marking the highest level since July of the previous year, as the election results became clearer.
Desai emphasized that whether the yield breaks the 5% mark depends on the deficit's expansion scale, which the economy might be able to handle.
