Treasury 10-Year Yields to Approach 4%, RBC’s Cloherty Says

Treasury 10-year note yields will climb to around 4 percent in the next year as U.S. economic growth accelerates, according to Michael Cloherty, head of U.S. interest strategy at RBC Capital Markets.

“We think that the economy has slowed down a bit, but 10- years through 3 percent is pricing for a dramatic slowdown,” Cloherty said during an interview on Bloomberg Television’s “Surveillance Midday” with Tom Keene. “That’s extreme weakness, real double-dip recessionary threat. We don’t think we’re going to get there.”

The Commerce Department said today that the economy grew at a 1.9 percent pace in the first quarter, marking the start of what Federal Reserve policy makers project is a temporary slowdown in growth. Fed officials said June 22 that the economy will expand 2.7 percent to 2.9 percent this year, down from forecasts ranging from 3.1 percent to 3.3 percent in April.

Yields on 10-year notes fell 4 basis points, or 0.04 percentage point, to 2.87 percent at 4:09 p.m. in New York, according to Bloomberg Bond Trader prices. The yield touched 2.85 percent, the lowest level since Dec. 1.

The 10-year note’s yield will reach 4 percent by June 2012, according to the median of 64 forecasters in a Bloomberg News survey. The last time the security touched 4 percent was April 2010.

Falling oil prices will help consumer spending overcome a month of “bad data” and the U.S. will expand enough that 3 percent yields will not be justified, Cloherty said.

The International Energy Agency decided yesterday to release 60 million barrels of oil stockpiles in an effort to drive down the price of crude oil and spur global economic growth. Crude oil for August delivery reached a four-month low in London trading.

To contact the reporter on this story: Joe Ragazzo in New York at jragazzo@bloomberg.net

To contact the editor responsible for this story: Dave Liedtka at dliedtka@bloomberg.net

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