(Bloomberg) -- One of the biggest bond bears on Wall Street is having a good start to the year as US Treasury yields edge toward his deeply contrarian forecast.
Padhraic Garvey, head of global debt and rates strategy at ING Groep NV, sees 10-year US Treasury yields trading around 5.5% toward the end of 2025, from about 4.63% on Monday. Among 51 year-end forecasts compiled by Bloomberg, only three are for increases from current levels, and ING’s call is about 40 basis points higher than the second-most bearish one.
Garvey’s forecast is based on the expectation that the Federal Reserve will keep interest rates restrictive to offset the risk that US President-elect Donald Trump’s tariff and tax-cut policies will create price pressures, and that investors will balk at the federal deficit.
“We have this inflation narrative which is still north of 2.5%, we have this deficit narrative,” New York-based Garvey said via telephone. “We are quietly confident we’ll see a 5% handle.”
If Garvey is correct, it will be a disappointing year for bond investors, who reaped only a small gain in 2024 despite three Fed interest-rate cuts totaling a percentage point. T. Rowe Price has also called for a 10-year yield of 5% in the first quarter of 2025 — and even hinted at the prospect of an eventual rise to 6%.
Since the historic losses of 2022, expectations that the Fed’s steep rate hikes beginning that year would cause a recession and a rush into bonds have been foiled. Inflation slowed but didn’t return to pre-pandemic levels, and US stocks soared. The 10-year Treasury yield ended 2023 at 3.88% — little changed on the year — and rose around 70 basis points in 2024 to 4.57%.
A year ago, Garvey’s team was bullish — expecting the 10-year yield to fall to as low as 3.5% in 2024.
US Treasuries fell Monday, lifting the 10-year yield as high as 4.64%, within 10 basis points of last year’s high reached in April, and the 30-year bond’s yield to the highest level since November 2023. Supply was the main catalyst. A series of three Treasury auctions totaling $119 billion begins Monday, and a whopping 22 investment-grade corporate bond offerings were announced.
The average of the Bloomberg-compiled forecasts suggests the US 10-year yield will finish 2025 around 4.12%. It was there as recently as early December, before Fed policymakers published revised quarterly forecasts suggesting they expect to cut interest rates by half a percentage point in 2025, less than previously.
“I’m not in the business of moving back to consensus,” Garvey said. “A test of 5.5% is reasonable.”
(Updates to inclue T. Rowe forecast from fifth paragraph.)
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