(Bloomberg) -- Nomura Holdings Inc. is joining T. Rowe Price in seeing a chance of 10-year Treasury yields rising to 6% this year, making the call days before Donald Trump’s inauguration as the next US president.
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“We posit that 10-year US Treasury yields are still low in relation to two of its key drivers – consumer price inflation and the fiscal balance,” Nomura economists led by Rob Subbaraman wrote in a note on Friday. Current yields are also low given the prospect of Trump’s nationalistic policies, they wrote.
Jitters over sticky inflation and fiscal burden had sent the benchmark 10-year US yield to the highest since late 2023 this week before easing as data showing cooling inflation revived bets for additional Federal Reserve interest rate cuts this year. All eyes are now on Trump’s inauguration on Monday to gauge the market impact of his policies.
Nomura expects the incoming Trump administration to “strike fast and hard” on tariffs, according to the note. But it sees disinflationary supply-side reforms like deregulation and increasing government efficiency taking time to pass through congress.
T. Rowe Price’ projection for higher US yields is also based on expectations of worsening fiscal woes and higher inflation under Trump. It sees the benchmark yield reaching 5% in the current quarter before potentially climbing further.
Nomura says cyclically adjusted US budget deficit plus inflation is already at its worst since at least 1960.
“There seems little scope to reduce the budget deficit of ~$2 trillion which, when combined with the refinancing of maturing debt, could result in gross US Treasury issuance of some $5 trillion this year, or 17% of GDP,” Nomura economists wrote.
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