Higher Interest Rates to Follow Fed Taper, SocGen’s Juckes SaysJeff Marshall
Interest rates will move higher later this year as the Federal Reserve initiates an end to five years of bond buying, according to Kit Juckes of Societe Generale SA.
“We can see what happens when we get the next labor market report, what happens when the Fed announces it is doing tapering, and then we can move to another higher range through the fall,” Juckes, a global strategist at Societe Generale, said in an interview on Bloomberg Radio’s “Surveillance” with Tom Keene.
Societe Generale forecasts a fourth-quarter 10-year note yield of 3.25 percent, a level not seen since May 2011. The Federal Open Market Committee will begin a two-day meeting on Sept. 17, when economists predict the Fed will announce the dialing back of its record bond-buying program, known as quantitative easing.
Benchmark Treasury 10-year note yields rose four basis points, or 0.04 percentage point, to 2.64 percent in New York, Bloomberg Bond Trader data show. The yield will end the year at
2.63 percent, according to the median in a Bloomberg survey of economists. It has averaged 3.55 percent during the past decade.
The yield on 10-year notes, a benchmark for mortgage rates and company borrowing costs, has risen 46 basis points since Fed Chairman Ben S. Bernanke said on June 19 the central bank may start dialing back its bond-buying program this year if the economy achieves sustainable growth. Yield increases will be limited amid a lack of inflation and Fed caution about raising rates too quickly, Juckes said
“The markets have gotten used to the idea we’re not staying at zero rates forever with QE forever, but we’re not going to start even thinking about rate hikes on a one- to two-year horizon unless the economy sees a faster pace of economic growth,” London-based Jukes said.