U.S. Outlook: What’s causing long-term U.S. bond yields to rise?

Scott Anderson
Posted by Scott Anderson
Chief Economist

Fluctuations in long-term Treasury bond yields are largely influenced by future growth and inflationary expectations and to some extent by the current level and expected changes in short-term interest rates that are controlled by the Federal Reserve.Federal Reserve building (Washington DC) at dusk.

For more on this, see highlights of my report below, followed by a link to the full U.S. Outlook, delivered on Oct. 12.

Key observations:

  • Yields on 10-year Treasury bonds began to rise sharply last week after better than expected U.S. economic data, including upward revisions to past employment data, and hawkish comments from Federal Reserve officials on the future path of short-term interest rates.
  • Declining affordability – the result of higher mortgage rates and rising home prices – is also depressing home sales this year.
  • Because of the current momentum in the U.S. economy, I am now expecting the Fed to lift the Fed funds rate three more times before pausing, including twice next year, each time in quarter-point increments.
  • The 10-year Treasury yield is projected to rise to 3.48% in Q3 2019, and then moderate to about 3.0% on average in 2020, as economic growth slows on tighter financial conditions and the impact from the tax cuts fade.

Read my full report.

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