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The U.S. 10-year Treasury yields are expected to rise towards 2.5 percent in 2017, supported by the Federal Reserve’s probable 25 basis points hike next week, coupled with the re-inflationary policy of the U.S. President-elect Donald Trump.
Also, it is highly likely that the benchmark yields will reach 3 percent mark next year, following the pace of the central bank to increase borrowing cost, an FxWirePro poll showed Thursday.
After an announcement of the U.S. 2016 presidential election result and following Republican candidate Donald Trump’s victory, there was a spark sell-off in the Treasuries market, pushing the 10-year yields to nearly 80 basis points in just a month.
"The future sell-off in Treasuries market in 2017 will completely depend on the Federal Reserve’s tone and the policy actions of would-be President Donald Trump," said L.K Kanvilkar, Bond Strategist, MarketTreasury.
Out of the total 10 economists and bond strategists polled by FxwirePro, 7 agreed that the yield of the benchmark Treasury yields will break 2.5 percent mark in 2017 while accepting that a rise towards 3 percent was also on the cards.
While yields have climbed steadily since the lows reached in June and July this year, the move since the US presidential election has doubled the year-to-date (YTD) move in yields. The faster pace of the sell-off has seen at-the-money volatility more than double since the election. While it is likely to stabilize for the moment, we can expect more episodes like this in the near future.
Markets will be carefully monitoring the Federal Reserve’s December monetary policy statement for any future direction in bonds yields. Next week, the FOMC is scheduled to meet and a 25 basis points rate hike has been completely priced in by market participants.
Meanwhile, all 10 respondents expected at least two more rate hikes going into 2017.
