Templeton Joins JPMorgan, T. Rowe in Warning of Higher Treasury Yields

Investment firms are warning of a potential surge in US Treasury yields, with some analysts predicting the 10-year yield could reach 5% or higher, reports Bloomberg.

This comes amid growing concerns about the expanding US government debt burden, fueled by a multi-trillion dollar deficit and exacerbated by the potential impact of a second Donald Trump presidency.

"Getting to 4.5% to 5% on the 10-year, that’s reasonable," said Sonal Desai, chief investment officer of Franklin Templeton Fixed Income, in an interview. Should investors perceive the US deficit "blowing out enormously," benchmark US yields could then go "above 5%," she added.

Desai joins JPMorgan Asset Management and T. Rowe Price in expressing concerns about rising Treasury yields. These warnings come as investors grapple with the potential implications of a second Donald Trump presidency for debt markets. Since the Nov. 5 election, Treasuries have fluctuated as traders assess whether the Federal Reserve will be able to continue cutting interest rates if the federal budget deficit expands significantly.

Open interest data reveals that traders are already accumulating positions that would benefit from further Treasury losses, anticipating that Trump's promised policies could reignite inflation. Any indication of faster-than-expected US consumer-price-index numbers due later Wednesday might further encourage short sellers.

The US 10-year note yielded 4.42% on Wednesday, up from its closing yield of 4.27% on the day of the Nov. 5 vote. The yield climbed to 4.48% on Nov. 6, marking its highest level since July, as Trump's victory became evident.

"Cracking 5% would depend on the scale of the expansion," said Desai, referring to the deficit. "The economy could probably take that."