25-Jul-22: UST2Y 3.01% / UST5Y 2.89% / UST10Y 2.79% / UST30Y 3%
RECAP
In the last report (US 10Yr @ 3.23% on 22-Jun-22) we had said 2.9% and 2.6% are important supports for the US 10Yr Treasury yield and it can rise from 2.9% itself towards 3.5%. However, it has declined below 2.9% and is heading down towards 2.6%. The US Headline CPI (9% in May) is heading up towards our 10%-11% target range. Indicators like housing data and PMI are signaling a slow down, increasing the likelihood of a recession in the US.
EXECUTIVE SUMMARY
The US CPI can rise further. The inflation can peak anywhere in the 10%-11% region in the next three months or so. Brent Crude remaining ranged between $85 and $125 will be the major factor that can pull inflation higher. Although the US is likely to run into a recession (maybe in this quarter itself), the US Fed will continue to hike the interest rates. We expect the Fed fund rate to stand at 3.5%-3.75% by November and then could be data driven thereafter. All these factors can take the US 10Yr up to 3.5% initially from where a corrective dip to 3.2% is possible before the yield targets 4% on the upside.
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