JPMorgan Chase & Co., one of 21 primary dealers that trade with the Federal Reserve, said the U.S. 10-year note yield may drop to a record low 1.5 percent as deteriorating conditions in Europe boost demand for safe assets.
“Treasuries have room to rally further if the situation in Europe continues to deteriorate,” strategists led by Terry Belton, global head of fixed-income strategy for the firm in New York, wrote in a client note dated May 11. Political turmoil in Greece since voters revolted against austerity in May 6 elections raises “the risks of a Greek exit from the euro zone following the new elections likely to take place June 17,” they wrote.
Ten-year Treasury note yields tumbled to 1.67 percent on Sept. 23, a record, as investors sought refuge in U.S. government debt amid concern the global economy was on the brink of another recession.
Yields on the benchmark security dropped as much as seven basis points today, or 0.07 percentage point, to 1.77 percent, the lowest level since Oct. 4.
The yields may trade at about 1.7 percent if comparable-maturity Spanish bonds’ yields increase to 6.5 percent, the strategists wrote. U.S. 10-year yields may slide 20 to 25 basis points for each 100 basis-point jump in Spanish and Italian debt, they wrote. Spain’s 10-year note yields climbed as much as 35 basis points today to 6.36 percent, the highest level since November, and yields on Italian 10-year debt rose 22 basis points to 5.73 percent.
JPMorgan forecasts Treasury 10-year yields will fall to 1.70 percent by June 30 and rise to 2.50 percent by year-end.