Rates on the brink: 3 calls for 2027
ING’s base call: Renewed upward pressure on long rates, but it ultimately wanes We expect upward pressure on Treasury yields to persist into early 2027, with AI-driven productivity growth, large fiscal deficits and sticky inflation potentially pushing the 10-year towards 5.25-5.50%. The turn should come later as inflation softens and Fed easing expectations return, pulling ...
ING predicts a resurgence in upward pressure on long-term interest rates, reaching a potential 5.25-5.50% for the 10-year Treasury yield by early 2027. This forecast hinges on factors such as persistent inflation, AI-driven productivity growth, and large fiscal deficits. However, as inflation eases and expectations of Fed easing return, rates are expected to gradually decline to the 4.5-4.75% range.
The primary risk to this outlook remains high inflation, which could push 10-year swaps above 4%. While markets may have overestimated an ECB terminal rate above 3%, the bank maintains a baseline of 2.5% for euro rates by year-end, with limited downside for longer-dated rates. AI is seen as an upside catalyst for yields, while France is identified as a key focus in sovereign spreads, potentially benefiting from the resolution of political uncertainties post-elections.
Three pathways to achieving 6% Treasuries and 4% Bunds are outlined: persistent inflation, a productivity-driven AI boom, and heightened fiscal risk. The latter scenario, driven by government-bond underperformance versus swaps, could push rates to 6% and 4% due to rising fiscal and term premia. The ultimate outcome hinges on whether policymakers intervene to curb rising yields, potentially establishing yield curve control in the US and the eurozone, which could inadvertently create greater systemic risk through de facto yield curve control.
Written by urgent.news from Hellenic Shipping News's reporting — not their text. Machine-written — may contain errors; check the original before relying on it.
