The 10-year Treasury seemingly gained’t be climbing to 2% this yr, says strategist

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Broker-dealer LPL Financial no longer expects the benchmark yield on 10-year Treasuries to rise up to 2% by the end of the year.

Instead, the strong interest in foreign purchases in US Treasuries and the economic weakness triggered by the delta variant of the coronavirus have led Lawrence Gillum, LPL’s bond strategist, to lower his company’s expected year-end range for the benchmark to between 1.5% and too lower 1.75%.

“Higher inflation expectations, less exposure from the Federal Reserve (Fed) to the bond market, and a record volume of US Treasuries this year were all reasons we thought rates could end the year between 1.75% and 2.0% “Wrote Gillum in a recent note.

The successful launch of COVID-19 vaccines in early January was one of the reasons for Gillum’s previous 10-year TMUBMUSD10Y return of 1.325%, fueling expectations of a pandemic lockdown reversal, rising GDP growth and rising long-term treasury rates .

“However, given the persistence of the delta variant, we are beginning to see GDP growth forecasts being revised downwards. That kept interest rates relatively anchored at current levels, ”said Gillum, who added the following economic growth graph to underline this.

The economic forecasts have been revised downwards due to concerns about the delta variant.

LPL Research, Bloomberg

On Tuesday, the 10-year rate rose to 1.323% after worries over Chinese real estate giant Evergrande Group 3333, -0.44% on Monday sparked a flight to safety and sparked the biggest one-day slump in government bond yields in about six weeks.

Persistently low global government and corporate bond rates have also attracted foreign investors looking for government bond yields.

“Aging demographics and strong social assistance programs have resulted in many Japanese and European investors looking outside their home countries to fund underfunded pension systems,” wrote Gillum.

“There are currently almost $ 15 trillion in negative yield bonds worldwide, which makes the 10-year government bond yield of 1.33% (as of September 16) extremely attractive.”