Even with the recent surge that saw the 10-year rate hit 1.6%, treasury yields have not been as low as estimated U.S. economic growth since 1966. This suggests increases in bond yields may still have room to be allowed to rise.
Analysts are raising their inflation growth forecasts as Americans are now getting closer to getting direct payment assistance from President Joe Biden’s $ 1.9 trillion stimulus package.
The average projection for nominal gross domestic product (GDP) reached a 32 -year high of 7.6% according to a Bloomberg survey.
Although bond yields have more than doubled since November, the gap between current bond yields and economic growth projections is seen to remain wide.
Following that, Goldman Sachs raised its 10 -year U.S. bond yield forecast to 1.90% by the end of the year from 1.50% projected last week.
The prospect of a stimulus and the launch of the Covid-19 vaccine, which has driven optimism towards economic recovery and higher inflation, has led to massive sell-offs in global bond markets in the past, and thus driven bond yields to a peak.
However, this is not a concern for the Federal Reserve (Fed), in fact they say the rise in bond yields reflects stronger growth prospects and reduces the need for policy responses.
