Don’t rule out a ten-year Treasury note yield up to 2.25% this year.
That’s Michael Schumacher’s message from Wells Fargo Securities, ahead of Wednesday’s Federal Reserve interest rate decision.
“The fiscal stimulus is huge and it looks like vaccine deployment is accelerating quite a bit, not just here in the United States,” the firm’s head of macro strategy told CNBC’s “Trading Nation” on Tuesday. “There are a lot of things that come together to increase yields.”
Still, Schumacher said his firm doubts about Fed Chairman Jerome Powell will show immediate concern.
“He has been very bloody with all the yield increases. We believe he will maintain that stance tomorrow,” he said. “Our view at Wells Fargo is that it won’t really try to stop it.”
Instead, Schumacher said he expects Powell to link rising yields with a vote of confidence in the economic recovery and to indicate that it is a recovery move to have low inflation for so long.
“The world has never seen a coordinated reopening like this. Not even after World War II,” Schumacher said. He said he believes Powell will show his willingness to let inflation exceed his 2% target for “a while”.
In December of “Trading Nation,” Schumacher predicted that Covid-19 vaccines would dramatically increase confidence and increase Treasury yields by 2021. So far this year, the 10-year benchmark yield has increased 77%. . It closed at 1.62% on Tuesday.
“Yields started this year (if you focus on the 10-year Treasury), just north of 90 basis points. This year it has risen about 70 basis points,” he noted. “So from 1.75% to 2%, I’d say, it could happen pretty quickly.”
Next year, Schumacher said, the yield could exceed 3%. That level could push the Fed to raise rates earlier than projected by Wall Street: 2022 instead of 2023, he said.
“The biggest risk … is that people underestimate how much the economy is returning,” Schumacher said. “Maybe we’re all a little too conservative.”
Exemption from liability