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September 30, 2015 at 08:28 AM
(Bloomberg) — Treasury market analysts predicting a selloff in the final quarter of the year are tempering estimates after the Federal Reserve refrained from raising interest rates and tumbling equities around the world drove U.S. 10-year yields to the lowest in a month.
Benchmark yields will climb to 2.45 percent by the end of 2015 from 2.10 percent on Wednesday, based on Bloomberg surveys of economists with the most recent forecasts given the heaviest weightings. Analysts have lowered their projections for four straight weeks, down from 2.56 percent at the end of August.
A measure of global equities has dropped about 6 percent since Fed Chair Janet Yellen refrained from increasing rates on Sept. 17, citing international uncertainty and tepid inflation. While the central bank’s preferred gauge of price pressures hasn’t exceeded 0.3 percent this year, a strengthening labor market is adding pressure on policy makers to raise rates for the first time in almost a decade. Central bank officials including Yellen and William C. Dudley have said in recent days that liftoff is still likely this year.
“The market will remain well supported and the Fed will have to end up providing guidance that there’s limited tightening likely over a long period,” said Adam Donaldson, head of debt research at Commonwealth Bank of Australia in Melbourne. “It’s very difficult for the Fed to raise rates when the rest of the world is stuck on hold and contemplating easier policy.”
Treasuries fell Wednesday, halting a two-day rally. The benchmark 10-year note yield climbed five basis points, or 0.05 percentage point, as of 6:36 a.m. New York time, according to Bloomberg Bond Trader data. The 2 percent security due in August 2025 fell 13/32, or $4.06 per $1,000 face amount, to 99 1/8.
The yield will stay in a range of 2.10 percent to 2.30 percent through year-end and the central bank will struggle to raise its main rate above 1.5 percent over the next few years, Commonwealth Bank’s Donaldson said. The central bank has left its benchmark in a range of zero to 0.25 percent since December 2008.
