A look at the spread between the two-year and 10-year U.S. Treasury yields in comparison with the Treasury term premium implies room for further easing in long-term yields.
Our forecast calls for the 10-year yield to average 4.5% this year, trading between 4.3% and 4.7% and testing 5%. Through Feb. 10, the 10-year yield has averaged 4.59%.
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The moderation follows Treasury Secretary Scott Bessent’s recent comments that the administration will focus on bringing down long-term yields as opposed to pressuring the Federal Reserve to reduce its policy rate.
His statements eased concerns that the administration would seek to compromise the Fed’s independence in setting the policy rate.
Bessent also said that, with the government well funded until the end of the third quarter, and he did not anticipate any changes in issuance in the near term.
Taken together, his comments contributed to a more optimistic outlook on longer-term yields.
