HSBC has increased its forecast for U.S. Treasury yields, citing a more hawkish Federal Reserve outlook despite maintaining a baseline view of stable interest rates through 2026 and 2027.
The bank now projects the 2-year Treasury yield at 4.20% by year-end 2026, up from a prior estimate of 3.85%, and at 3.95% by the end of 2027, compared with 3.50% previously. For the 10-year yield, HSBC expects 4.65% at the end of 2026, rising further to 4.75% by the end of 2027, both above prior targets of 4.30% and 4.30%, respectively.
The revisions reflect a near-even probability of a 25-basis-point rate hike by the Federal Open Market Committee in September, as policy debates hinge on the balance of risks tied to the Fed’s dual mandate. HSBC noted that an increasing asymmetry in these risks is likely to sustain upward pressure on short-term yields, even if no immediate monetary tightening occurs.
The bank’s updated projections follow remarks by Federal Reserve Governor Kevin Warsh at the Jackson Hole Economic Symposium, which suggested a clearer reaction function from the central bank. This could temper the term premium accumulated during the Northern Hemisphere summer and allow long-term yields to ease slightly in the near term.
Over a longer horizon, HSBC warned that persistent fiscal deficits are expected to drive a continued steepening of the Treasury yield curve, reinforcing the upward bias in its forecasts.
