In the base-case scenario, Société Générale’s US-based rates strategists see the US 10-year Treasury yield at 1.95% by mid-2022. In the upside scenario, they see modest upside risk to their forecast of 2.20% by mid-2022. In the downside scenario, the 10-year Treasury yield would be at 1.30%.
Base case for 2Q22 (50% probability)
“10yT at 1.95%. We expect US GDP to grow by 3.4% in 2022 and 2.8% in 2023 after a strong 5.5% print in 2021. With the unemployment rate already down to 4.2%, we are close to full employment. Core CPI should moderate in 2H22 for an average of 3.3% for next year. In this context, we expect modestly higher yields ahead, with the 10yT yield at 1.95% by mid-2022.”
Upside scenario for 2Q22 (25% probability)
“10yT at 2.20%. If global economies are able to cope with new COVID-19 variants and rebound at a stronger pace, we see modest upside risk to our forecast. Inflation is a key metric. If it does moderate in 2Q and 3Q, the Fed might not be in a rush to raise rates. In the context of easier financial conditions and modest tailwinds from additional fiscal stimulus, a pick-up in US and global growth could support higher global bond yields.”
Downside scenario for 2Q22 (25% probability)
“10yT at 1.30%. A slower recovery owing to the risks associated with the pandemic and persistent inflation contributing to a slowdown in growth are likely catalysts for lower yields and flatter curves. The slowdown in China and higher probability of a hard landing are additional risks that might push investors toward the safety of Treasuries. In this context, yields could remain relatively unchanged over the coming months.”
