US 10-Year Bond Yield Hits 19-Year High

The US 10-year government bond yield has surged past 5% to a 19-year high, reaching its highest level since June 2007. This significant increase has led Standard Chartered to view the risk-reward trade-off for these bonds as compelling.

The bank expects the yield to ease towards 4.75-5% over the next 12 months due to several factors, including easing oil prices and inflation. They also anticipate a shallow Fed rate hiking cycle, with only two further 25bp hikes by June 2027, followed by a cut in H2 2027.

This prediction is based on various arguments against aggressive tightening, such as supply-driven inflation, labour no longer being the main inflation source, and disinflation expected to resume. Additionally, markets are already tightening financial conditions, which could reduce the need for further hikes.