Nomura Holdings Predicts Surge in the 10-Year Treasury Yield

Nomura Holdings Inc. has joined T. Rowe Price in forecasting that the 10-year treasury yield could rise to 6% this year, a projection made just before Donald Trump is set to assume office as the next president of the United States. In a recent analysis, economists at Nomura, led by Rob Subbaraman, noted that current 10-year treasury yields remain low relative to two critical factors: consumer price inflation and the nation’s fiscal balance. They highlighted that the yields are underestimated considering Trump’s expected national trade policy.

Concerns over persistent inflation and fiscal challenges have recently propelled the 10-year U.S. Treasury yield to its highest level since late 2023. However, yields decreased following reports of cooling inflation, renewing expectations for further interest rate cuts by the Federal Reserve later this year. Attention now shifts to Trump’s inauguration on Monday, as markets anticipate insights into how his policies might impact the 10-year yield. Nomura's analysts predict that the new administration will likely implement aggressive tariff strategies immediately. Yet, they warn that more gradual disinflationary reforms—like deregulation and improving government efficiency—may take considerable time within the legislative process.

T. Rowe Price’s outlook for rising U.S. yields is similarly based on predictions of increasing fiscal challenges and heightened inflation stemming from Trump’s policies. They estimate that the benchmark yield may touch 5% within the current quarter, with the potential for further increases. Nomura emphasizes that the cyclically adjusted U.S. budget deficit and inflation metrics are at their most critical levels since at least 1960. The firm indicates that the likelihood of reducing an approximately $2 trillion budget deficit seems slim. Combined with the necessity to refinance maturing debt, this scenario could result in gross U.S. Treasury issuance reaching about $5 trillion in 2023—representing a staggering 17% of GDP.

As the financial landscape evolves in response to a new administration, investors will closely monitor these developments for their potential repercussions on the economy and the bond market trends.