Wall Street bond bears: The yield on the 10-year U.S. Treasury will rise to 5.5% by the end of the year

According to the Zhitong Finance APP, one of Wall Street's largest bond bears has had a good start this year, as U.S. Treasury yields are approaching his forecast. Padhraic Garvey, Global Head of Debt and Rates Strategy at ING, predicts that by the end of 2025, the yield on the 10-year U.S. Treasury will rise to 5.5%, while the yield closed at around 4.63% on Monday. His forecast for the 10-year U.S. Treasury yield is about 40 basis points higher than the second most pessimistic prediction. Padhraic Garvey's forecast is based on the expectation that the Federal Reserve will maintain restrictive interest rates to offset the price pressures that President Trump's tariff and tax policies may bring, as well as the risk that investors will continue to shy away from federal securities. Padhraic Garvey stated, "Inflation in the U.S. is still above 2.5%, and the budget deficit is also present. We privately believe that the yield on the 10-year U.S. Treasury will rise to 5%." It is worth mentioning that a year ago, Padhraic Garvey and his team were optimistic, predicting that the yield on the 10-year U.S. Treasury would fall to a low of 3.5% by the end of 2024. If Padhraic Garvey is correct, this year will be disappointing for bond investors. In fact, besides Padhraic Garvey, T. Rowe Price also predicts that the yield on the 10-year U.S. Treasury will rise to 5% in the first quarter of this year, and suggests it could eventually reach 6%. Zachary Griffiths, Chief Strategist at credit research firm CreditSights, and his team also believe that there is still room for further increases in U.S. Treasury yields. Since the historic losses in 2022, expectations that the Federal Reserve's significant rate hikes would lead to a recession and investors flocking to buy bonds have not materialized. Although inflation has slowed, it has not returned to pre-pandemic levels. The U.S. stock market has surged for two consecutive years in 2023 and 2024. By the end of 2023, the yield on the 10-year U.S. Treasury was 3.88%, with little change throughout the year; it is expected to rise by about 70 basis points to 4.57% in 2024. The Evercore ISI strategist team recently stated that rising U.S. Treasury yields pose the biggest challenge to the stock market bull run, warning that a 10-year Treasury yield exceeding 4.75% could trigger "a longer and deeper stock market correction."