Kiwoom "Increased Volatility... Q2 US 10-Year Treasury Yield Fluctuates Between 3.6% and 4.4%"

Kiwoom Securities predicted that amid increased volatility in the bond market due to the so-called 'Trump tariffs,' the U.S. 10-year Treasury yield in the second quarter will fluctuate between 3.6% and 4.4%. The lower bound of the 10-year yield forecast remains at 3.6%.

On the 8th, Kiwoom Securities researcher Ahn Ye-ha stated in the report titled "Reviewing the Background of the U.S. Treasury Yield Reversal," "There is an expanding volatility pattern in the U.S. Treasury market." The benchmark 10-year U.S. Treasury yield, a global financial market indicator, fell below 3.9% intraday after the Trump administration announced reciprocal tariffs on the 2nd, but rebounded again following news of negotiations with various countries, recovering the recent decline. The 2-year yield, sensitive to monetary policy, dropped to 3.65% before recovering to around 3.76%.

Researcher Ahn cited the following reasons for the sharp rebound in market yields: ▲ expectations for negotiations between the U.S. and tariff-imposing countries ▲ the cautious stance of the U.S. Federal Reserve (Fed).

First, he noted, "The U.S. has shown willingness to negotiate with countries other than China," adding, "Although the White House corrected the claim of a 90-day tariff exemption as fake news, the market still seems to expect positive outcomes through negotiations." This expectation that the economy may avoid slipping into recession has led to the recent yield rebound.

He also mentioned, "The Fed's cautious stance has also limited investors' buying momentum," explaining, "(Fed officials) repeatedly emphasize the need to confirm inflation caused by tariff policies. Given the possibility that the Quantitative Tightening (QT) policy may not end, the U.S. Treasury yields, especially long-term ones, have rebounded again." Currently, the interest rate futures market reflects reduced expectations for rate cuts not only in April but also in May.

Researcher Ahn observed, "There is currently no active buyer of U.S. Treasuries. Overseas demand outside the U.S. is also weakening amid a strong dollar trend," and predicted, "the market will continue to experience high volatility, repeatedly expanding and contracting expectations for negotiations for the time being."

In the short term, volatility is expected to increase around the release of the U.S. March Consumer Price Index (CPI) later this week. Additionally, the U.S. Treasury's quarterly borrowing plan, to be announced at the end of April, is considered a key event to confirm supply and demand factors. He predicted, "If it is reconfirmed that there are no significant changes in the borrowing plan announcement, volatility in U.S. Treasury yields will weaken."

Researcher Ahn concluded, "Unless inflation rises sharply, yields are expected to gradually decline again reflecting concerns about economic slowdown," suggesting a 3.6% to 4.4% range for the U.S. 10-year Treasury yield in the second quarter. He added, "Since concerns about recession may become prominent, the lower bound of the 10-year yield forecast remains at 3.6%."