Recently, due to the hawkish remarks by Federal Reserve officials and poor results from U.S. Treasury auctions, U.S. Treasury bonds have been under pressure, with the 10-year Treasury yield breaking past its previous trading range. However, Evercore ISI indicated on Wednesday that according to its "Evercore ISI Tactical Rates Index" forecast, the 10-year Treasury yield could stabilize between 4.30% and 4.50% in July. This index leads the spot Treasury yield by 8 weeks.
Since the last employment report on May 3, a tug-of-war between bullish and bearish factors has kept yields in a narrow range. However, the situation has changed in recent weeks. Despite typically poor economic data dragging down yields, hawkish remarks from Federal Reserve officials, along with weak Treasury auctions and declines in housing and consumer prices, have not entirely offset these negative impacts.
Neel Kashkari, President of the Minneapolis Federal Reserve Bank, stated earlier this week that "more months of positive inflation data" are needed to support rate cuts. While he indicated that the likelihood of a rate hike is low, he did not completely rule out the possibility.
According to Evercore ISI's analysis, the adjustment of the 10-year Treasury yield to the 4.30% to 4.50% range requires the combined effect of four major trends: employment growth slowing to below the working-age population growth rate, increased financial pressure on low-income consumers, a decline in the core inflation rate excluding housing and shelter services, and the potential for a Fed rate cut this year.
Although Evercore ISI believes these conditions have not yet fully materialized, it also points out that seasonal factors could significantly impact the 10-year Treasury yield in May, June, and July.
Just a few days ago, Deutsche Bank predicted that the Federal Reserve's preferred inflation measure, core PCE data for April, would increase by 0.26% month-on-month. At this time, the question of a possible rate cut this week has once again surfaced, prompting bearish forecasts for the 10-year Treasury yield or overall benchmark yields.
