HSBC has raised its U.S. Treasury yield forecasts for 2026 and 2027, citing a more hawkish Federal Reserve outlook and sustained fiscal pressures. The bank maintained its base case that the Fed will hold policy rates steady through 2026 and 2027, but now sees a nearly even chance of a 25-basis-point hike in September as FOMC deliberations intensify.
The two-year Treasury yield is now projected at 4.20% by year-end 2026, up from a prior forecast of 3.85%, and 3.95% for end-2027, compared with a previous estimate of 3.50%. The ten-year yield is forecast to reach 4.65% by December 2026, higher than the prior 4.30%, and is expected to climb to 4.75% by the end of 2027.
HSBC attributed the upward revision to an increasingly asymmetric skew in the Fed’s dual mandate risks, which it said is likely to sustain upward pressure on front-end yields even if no immediate policy tightening occurs. The bank also noted that remarks from Federal Reserve Chairman Kevin Warsh at the Jackson Hole Economic Symposium suggested the central bank’s reaction function could help contain term premiums, potentially easing long-end yields in the near term.
Over a longer horizon, HSBC emphasized that persistently large fiscal deficits are expected to steepen the Treasury curve, reinforcing the upward bias in yield projections.
