HSBC sees 10-year Treasury yield at 4.65% by year-end, not 6%

The 10-year Treasury yield fell to 4.951% on Monday, retreating from last week's 19-year high of 5.041%. HSBC now expects the yield to reach 4.65% by year-end rather than 6%, and said the decline could continue. Falling oil prices and hopes for a deal with Iran helped calm markets, reversing last week's hawkish mood. HSBC raised its two-year year-end yield forecast to 4.20% from 3.85%. It raised its 10-year forecast to 4.65% from 4.30%. The bank's base case remains that the Federal Reserve will hold rates through 2027. HSBC sees near-even odds of a rate hike in the current cycle and described the Federal Open Market Committee's internal debate as being on a fine edge. The bank said Fed Chair Kevin Warsh's Jackson Hole remarks eased the summer's term premium. HSBC also said persistent fiscal deficits would keep pressure on the yield curve further out. It argued that an increasingly asymmetric balance of risks to the Fed's dual mandate could keep front-end yields under upward pressure even if the Fed does not tighten policy soon. Other forecasters have different views. Miller Tabak's Matt Maley identifies 4.8% as the more urgent test and warned that a sustained break above that level could affect other assets. Deutsche Bank's data on past tightening cycles points to a 6% move as more likely in 2027 than in the near term. iCapital forecasts 5.3%, with Dan Suzuki identifying oil rather than the Fed as the driver. ZeroHedge's bear case says 6% could arrive regardless of how orderly the path is. The forecasts currently range from 4.65% to 5.3%, and the article identifies a decisive break above 4.8% as the nearer-term signal to watch. This week's Purchasing Managers' Index data, jobless claims and several Federal Reserve speeches are expected to test the competing forecasts.