In a recent interview with CNBC, top Wall Street analyst Jim Bianco projected the 10-year Treasury yield to rise up to 5.5% in 2024, reaching the highest level since May 2001.
The president and macro strategist of Bianco Research, expected a more hawkish Fed approach and an unexpectedly resilient economy this year.
Decoding Fed’s Minutes And Economic Outlook
Bianco’s analysis of the recent Federal Reserve minutes revealed a less aggressive stance on rate cuts than many anticipated.
“The minutes came in a little bit more hawkish … suggesting that the Fed might be a little, if I could use the word, stickier, in cutting rates,” he explained.
Bianco also raised concerns about inflation, projecting it to stabilize around 3%, notably above the Fed’s 2% target. He underscored the urgency with which the Fed was tackling inflation, emphasizing that even a 3% rate was too high for their comfort.
Bianco saw an economy that defies the common narrative of a “soft landing.”
He confidently stated, “I don’t think we’re having a soft landing … the economy is doing what it does 90% of the time. It is continuing to expand.”
He argued the current economic expansion could comfortably withstand higher interest rates.
Bianco expected a scenario where the economy continued its upward trajectory despite higher interest rates. “I don’t think something is broken because of these rates,” Bianco remarked, challenging the notion that high interest rates necessarily herald a recession.
Bianco believed the Fed might implement up to three rate cuts, questioning the current market expectations which was pricing in as much as six rate cuts by the end of 2023.
“The markets ended last year with six rate cuts priced in (blue) Currently, (post ADP/Claims) it has five rate cuts priced in (red) The Fed’s December ‘dot chart’ showed three cuts (orange) And this is before tomorrow’s payrolls,” he wrote on Elon Musk‘s X.
10-Year Yields At 5.5% By Mid-2024
Bianco stood by his earlier prediction that the 10-year yield could escalate to 5.5%, aligning with the nominal GDP level.
He suggested this increase in the 10-year yield might happen before the end of 2024, likely around the middle of the year.
Bianco noted the yield curve was inverted for an extended period, which was atypical. He explained, “The yield curve is inverted, and it’s been inverted now for about 15 months.”
According to the expert, the increase in the long-term Treasury yield, combined with potential rate cuts by the Fed, would contribute to the normalization process of the yield curve in 2024.
“So if the Fed wants to cut once or twice. Maybe three times and bring the funds rate down into high fours and the 10-year yield goes to 5.5%, that’s a plus 75 basis point yield curve.”
“I would think that’s a good thing, especially for banks,” he remarked, indicating that a normalized yield curve in such an environment could enhance the profitability of banks and lending institutions.
Yields on a 10-year Treasury Note have fallen by about one percentage point to the current 4% since late October. Consequently, the US Treasury 10 Year Note ETF UTEN rallied 8% since 2023’s lows.
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