BoA forecast

Bank of America Corp. cut its forecast for 10-year Treasury yields for the third quarter, saying that worsening economic conditions will prompt the Federal Reserve to add to stimulus efforts.

The 10-year yield will decline to 1.85 percent by the end of September, the company’s U.S. rates strategy team led by Priya Misra wrote in a research note dated March 30. The previous forecast was for a slide to 2.1 percent.

The Fed bought $2.3 trillion of securities in two rounds of quantitative easing, or QE, from December 2008 to June 2011 and has held its target interest rate at a range of zero to 0.25 percent since December 2008. Fed Chairman Ben S. Bernanke said last week that the central bank will consider further stimulus, even after upgrading its economic outlook March 13.

Worsening economic data will spur the Fed “to the next phase of quantitative easing,” Misra wrote.

Bank of America, one of the 21 primary dealers that underwrite U.S. debt, expects real gross domestic product growth to slow to 1 percent in the third quarter. Benchmark U.S. yields will fall to 2.1 percent in the second quarter, compared with a previous forecast of 1.85 percent, and then rise to 2.3 percent by the end of 2012, according to the note. That compares with an earlier estimate of 2.4 percent in the fourth quarter and the 2.48 percent average estimate of 21 primary dealers in a Bloomberg News survey.

The 10-year yield increased three basis points to 2.24 percent today as of 1:46 p.m. in Tokyo. It reached as high as 2.4 percent last month.

To contact the reporter on this story: Mariko Ishikawa in Tokyo at mishikawa9@bloomberg.net.

To contact the editor responsible for this story: Rocky Swift at rswift5@bloomberg.net

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