What About The 10YR?

The $60K question about the Fed lowering rates is what will happen to the 10YR yield 6-12 months out?

I believe the 10YR Treasury Yield will fall a bit as the Fed lowers, but should price inflation persist (it should persist given zero reserve requirements, a $2 Trillion deficit, and lower short rates), there is a chance that the 10YR yield will be stubborn and may creep back up over 4% next year, or higher.

That said, Treasury won’t be flooding the market with new 10 Year Treasury issues. Most of the $2 Trillion deficit will be funded with short-term Treasuries (nobody wants long-maturity U.S. paper).

Therefore, new unwanted 10YR supply won’t be the thing to push 10YR yields higher, it will be price inflation that does so. Persistent price inflation will cause some 10YR Treasury holders to dump Treasuries in the pursuit of higher yields.

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