10-Year Treasury Bond Yield Will Crash to 1%, UBS Warns

Sam Bourgi @hsbourgi
September 4, 2019 20:11 UTC

Conditions are favorable for another steep fall in the U.S. Treasury bond yield curve, says UBS, Switzerland’s largest financial institution.

In revised projections published Wednesday, the bank identified U.S.-China trade tensions and their impact on economic growth as the chief catalyst for the continued drop off in yields.

UBS Cuts Forecast on 10-Year U.S. Treasury Yield

How central banks respond to slowing economic growth will have a direct impact on the bond markets, says UBS. | Source: REUTERS / Erin Scott

Despite falling to more than three-year lows, the benchmark 10-year U.S. Treasury yield still has a long way to go before hitting bottom. UBS says the government-backed Treasury yield could reach 1% by the end of 2019. Such a move would be accompanied by a steep rise in bond prices, which track inversely with yields.

The 10-year Treasury yield reached a session low of 1.45% on Wednesday, according to CNBC.

With the global economy being dragged down by U.S.-China trade tensions, central banks are formulating a desperate response to stave off stagnation. The Federal Reserve, Reserve Bank of Australia and Reserve Bank of New Zealand have slashed interest rates for the first time in years. Others, including the European Central Bank, are planning new stimulus packages imminently.

Bond Yield Watch

U.S. government debt yields rose in overnight trading Wednesday after Hong Kong’s chief executive said she would formally withdraw an extradition bill that sparked a monthslong public protest in the Special Administrative Region.

In a recorded address, Carrie Lam pledged to increase dialogue with the community and pursue an independent review of the political climate in Hong Kong. The move satisfies one of five demands from the opposition movement, which has been protesting the bill for three months.

10-Year Treasury Constant Maturity Minus 2-Year Treasury Constant Maturity. | Source: St. Louis Fed

The 2-year yield swung back below the 10-year yield on Wednesday, just one day after settling on par. The 2-year Treasury yield traded within a range of 1.43% to 1.47%.

Last month, yields on the 2-year and 10-year yields inverted for the first time since before the financial crisis, triggering recession alarms.

Sam Bourgi @hsbourgi

Financial Editor to CCN Markets, Sam Bourgi has spent the past nine years focused on economics, markets and cryptocurrencies. His work has been featured in and cited by some of the world's leading newscasts, including Barron's, CBOE and Forbes. Avid crypto watchers and those with a libertarian persuasion can follow him on twitter at @hsbourgi. Sam is based in Ontario, Canada and can be contacted at sam.bourgi@ccn.com