Changing Our 10-Year Yield Forecast

Changing Our 10-Year Yield Forecast

February 20, 2019

Economic growth could be lower than we initially expected this year, which could weigh on long-term rates.

We’ve seen enough evidence recently to think 2019 gross domestic product (GDP) growth is likely to be closer to 2.5%, the lower end of our original 2019 forecast, with risks balanced to the upside and downside. Given our lower expectations for U.S. GDP and deteriorating global conditions this year, we expect the 10-year Treasury yield to trade in a range of 3–3.25% at the end of 2019.

As shown in the LPL Chart of the Day, our forecast is about 30–50 basis points (0.30–0.50%) higher than current levels and implies that the 10-year yield may not materially breach the highs of 2018.

10 Year Treasurys near-term Upside may be limited

We still expect the core Consumer Price Index (CPI) to grow 2.25—2.5% in 2019. Core CPI growth of 2.5% would be the fastest pace of price growth in the economic cycle, but we think a slight increase in inflation would make sense given the firm U.S. labor market and the possibility that economic activity could stabilize after trade headwinds subside. We also predict the Federal Reserve (Fed) will pause on interest rate hikes through the rest of 2019, with the possibility of one rate hike in the second half of the year if inflation picks up too quickly.

“U.S. government debt is attractively valued for global investors, even with a Fed pause,” said LPL Research Chief Investment Strategist John Lynch. “Healthy inflation and moderate growth could lift the 10-year yield slightly higher, but weakening global conditions could cap further rate appreciation this year.”

Even though we’ve adjusted a few forecasts, our overall belief that the U.S. economy is on solid footing hasn’t wavered. We don’t expect a recession in 2019, and we have yet to see the red flags that in the past have signaled a large increase in recession risk.

For more details on our revised forecasts, check out this week’s Weekly Economic Commentary.






The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual security. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing. The economic forecasts set forth in this material may not develop as predicted.

All indexes are unmanaged and cannot be invested into directly. Unmanaged index returns do not reflect fees, expenses, or sales charges. Index performance is not indicative of the performance of any investment. All performance referenced is historical and is no guarantee of future results.

Investing involves risks including possible loss of principal. No investment strategy or risk management technique can guarantee return or eliminate risk in all market environments.

This research material has been prepared by LPL Financial LLC.

To the extent you are receiving investment advice from a separately registered independent investment advisor, please note that LPL Financial LLC is not an affiliate of and makes no representation with respect to such entity.

The investment products sold through LPL Financial are not insured deposits and are not FDIC/NCUA insured.  These products are not Bank/Credit Union obligations and are not endorsed, recommended or guaranteed by any Bank/Credit Union or any government agency.  The value of the investment may fluctuate, the return on the investment is not guaranteed, and loss of principal is possible.