Wells Fargo Predicts 10-Year T-Note Will Rise Above 1%

Now at a 0.63% yield, the benchmark bond should move up due to better economic and virus news, says bank’s strategist.

The benchmark 10-year Treasury’s yield is a minuscule 0.63%. Just last December, it was at 1.9%. And the year before that, it was 3.1%.

But Wells Fargo Securities thinks the benchmark 10-year T-note is headed upward, back above the 1% mark, where it was until early March. “It sounds really out there, but it’s not,” said Michael Schumacher, the bank’s chief macro strategist, who bases his call on the hope of good news on the coronavirus fighting front, which would then result in a turn-around of the plummeting economy.

As Schumacher sees things: “If the virus course does reverse and if the economic impact seems like it’s mitigating somewhat, 1.25% seems very much in reach to us” on the 10-year Treasury.

For sure, Wednesday’s news from Gilead Sciences, that its remdesivir drug has shown positive signs in fighting COVID-19, buoyed hearts. The S&P 500, which has been rising due to hopes about containing the virus and re-opening the economy, enjoyed a 2.7% pop.

Early March, of course, was when then the virus outbreak became serious and the bond was in even greater demand from investors worldwide as a refuge. Even with enormous fiscal and monetary largesse, no one thinks Uncle Sam and his pal, the Federal Reserve, which can create money at will, are about to go broke

“You’ve got so many factors coming together,” he told CNBC. “As we suspect, you’ll see continued progress on the virus.”

He indicated that the economy, now burdened by 30 million unemployment insurance applicants, can’t turn around quickly. But a sign of progress should be enough to allow the panicky rush into Treasury bonds to subside, dropping prices and lifting yields (they move in opposite directions).

Under his timetable, the 10-year yield within the next three weeks moves up to 0.80%. Come summer, it should ascend past 1%. “By the end of the year, we think they go quite a bit higher,” he said. Namely, 1.25%, which the bond last saw in late February.

Another factor in the bond yield drama is that the Federal Reserve plunged short-term rates to near zero to offset the economic woes accompanying the outbreak. While the Fed, whose policymaking committee is meeting this week, won’t go below zero, it will continue buying bonds, which would counter Schumacher’s expectations.  

“One big thing for the US which we think is a plus is the response here has been huge, and it’s been very quick,” Schumacher said.

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