Treasury Yields Dip — But Wall Street Warns the Long End Isn't Done Climbing
The 10-year yield slipped on calm markets and a patient Fed, yet ING strategists see deficit worries and pending tax cuts keeping long-dated yields elevated.
Bond markets caught a breather this week, but strategists aren't calling it the start of a real rally. The 10-year U.S. Treasury yield fell about 9 basis points to 4.534% in mid-morning European trade, according to Tradeweb — yet ING strategists told the Wall Street Journal they expect the long end of the curve to keep trading at higher yields.
The calm, by ING's reading, rests on what hasn't happened. President Donald Trump "hasn't delivered anything to shock markets so far," the strategists wrote in a note — but tax cuts are still on the table and concerns about the budget deficit will continue to linger. Those two overhangs, in their view, put a floor under long-dated yields regardless of day-to-day moves.
A Fed in no hurry
The Federal Reserve is expected to keep the target range for the federal funds rate unchanged at 4.25%–4.50% at this week's policy meeting, according to LSEG data cited by the Journal. Generali Investments senior economist Paolo Zanghieri said in a note that the Fed will want to err on the side of caution, since it doesn't have a precise estimate of the neutral rate — the level where policy neither stimulates nor restrains the economy.
In recent weeks, the Fed has clearly signalled a pause to assess how past rate changes have affected the labor market and inflation, Zanghieri said. Generali expects the bank to hold on Wednesday, but its statement and the post-meeting press conference to come across "a bit more dovish than expectations," given the better news on inflation from the latest CPI prints.
A separate Journal market note put the 10-year yield down about 10 basis points to 4.524% from 4.623%, underscoring how the session's move was driven more by positioning and calm than by any decisive shift in the outlook.
What to watch
The near-term setup is familiar: a Fed on hold, inflation improving enough to keep rate-cut hopes alive, and a bond market refusing to price in much relief at the long end. For investors, the message from ING is the uncomfortable one — the yields that matter most for mortgages and corporate borrowing may stay elevated even when the Fed is standing still, because Washington's fiscal math, not the central bank's next meeting, is doing the heavy lifting.
Written by the BidAsk Newsroom. Based on reporting from the sources below.
