HSBC Sees 10-Year Yield at 4.65% by Year-End as Retreat Extends

The 10-year Treasury yield slipped to 4.951% on Monday, pulling back further from the 5.041% peak last week—a level not seen in 19 years. HSBC now expects the yield to settle near 4.65% by year-end, not 6%, and believes the decline still has momentum.

Falling crude prices and optimism over a potential Iran deal soothed markets on Monday, marking a sharp contrast to the hawkish sentiment that fueled last week's surge.

HSBC's Rate Outlook Turns More Hawkish

HSBC actually raised its entire Treasury curve forecast this month, lifting the two-year year-end projection to 4.20% from 3.85% and the 10-year target to 4.65% from 4.30%. The bank continues to see the Federal Reserve holding rates steady through 2027 as its baseline scenario.

Still, HSBC now views a rate hike this cycle as roughly a coin flip, describing the Federal Open Market Committee's internal debate as "on a fine edge."

The bank attributed the easing of summer's term premium to Fed Chair Kevin Warsh's Jackson Hole comments, while persistent fiscal deficits will likely keep upward pressure on the longer end of the curve, it said.

"An increasingly asymmetric skew in dual mandate risks means the distribution of potential outcomes has changed, and we think this likely sustains upward pressure on front-end yields even if the Fed doesn't tighten policy in the near term."

(HSBC)

Other Forecasts for the 10-Year Yield

Not all see it the same way. Miller Tabak's Matt Maley calls 4.8% the more pressing threshold, cautioning that a sustained break above that level could spill into other markets.

Deutsche Bank's analysis of past tightening cycles suggests a move to 6% is more a 2027 scenario than a near-term one.

iCapital's 5.3% projection sits even higher, with Dan Suzuki pointing to oil—not the Fed—as the key driver. ZeroHedge's bearish view argues 6% happens no matter how orderly the path appears.

Forecasts now range from 4.65% to 5.3%. That puts a decisive push above 4.8%, rather than a jump to 6%, as the near-term threshold to watch.

This week's Purchasing Managers' Index data, jobless claims, and several Fed speeches should test which side is right.