The 10-year US Treasury yield rose to 5.01% on Monday, a 24-year high and the first time above 5% since 2007 except for a volatile session in October 2023. Steven Barrow, head of G10 strategy at Standard Bank in London, raised his year-end forecast for the benchmark yield to 5.2% and sees it reaching 5.3% in the first quarter of 2027.
Barrow's earlier forecast of a 5% yield in February was considered an outlier when yields were below 4% and investors were betting on a series of Federal Reserve rate cuts. Since then, the US-Iran conflict has pushed energy prices higher, and markets are now pricing in renewed rate increases from Wednesday.
Barrow said the market is structurally in a phase of longer-term higher rates. He added that the move close to 5% was significant because it occurred even though inflation data had not been far above expectations.
Bond yields are rising globally. The Trump administration's attack on Iran at the end of February has interrupted oil and gas supplies from the Middle East. In the United States, an artificial-intelligence boom is supporting economic activity while also adding debt to markets.
Barrow has previously called correctly on US bond prices in 2021 and on the US dollar and British pound. He did not anticipate the continued weakness of the Japanese yen.
Although the path to 5% differs from his early-year expectations, Barrow said long-term drivers for higher rates have strengthened. He cited global supply-chain bottlenecks, the consequences of climate change and stricter immigration policy.
The Federal Reserve under President Kevin Warsh is central to the outlook. President Donald Trump is pressuring the Fed to cut rates, but Barrow expects a rate increase at the September meeting and another in December, with policy rates held unchanged until the end of 2027.
Barrow said that if the Fed does not act, the result could be serious problems. He said the Middle East conflict keeps all signs pointing to higher inflation.
