A Rate Hike and Rising Growth Mean Higher Treasury Yields

Now that Greece’s debt crisis appears to be settled, at least for now, the U.S. Treasury market can return its focus to domestic issues. With the Federal Reserve likely to raise interest rates later this year and economic growth rebounding from the first quarter’s slump, that should mean higher yields, market participants say.

Gary Schlossberg, senior economist at San Francisco–based Wells Capital Management, expects the Fed to begin raising rates in December and for economic growth to total 2.5 to 3 percent for the rest of the year, following a 0.2 percent slump in the first quarter. He says that will put the ten-year Treasury yield at 2.6 to 2.65 percent by year-end, up from 2.4 percent currently.

“I think yields will ultimately move up, but the response will be more muted to the Fed’s rate increase than in the past,” he adds. “Fundamentals don’t argue for a strong move up.”

虽然周期性因素指向经济中的力量，但一些结构因素表明弱势，斯基罗斯伯格维持。在周期性方面，个人收入和财富上升，油价下跌，房屋负担能力远高于其历史平均水平。所有那个怎样为消费者行业提供良好。

On the structural side, says Schlossberg, “there’s fundamental weakness in the job market.” That includes slow labor force growth and a mismatch between the demand for skilled labor and a large pool of unskilled labor. That’s leading to more discouraged workers. The labor force participation rate hit a 38-year low of 62.8 percent in June.

Meanwhile, the economies of many U.S. export markets are weak. And the dollar’s strength is not only curbing exports but also limiting domestic pricing power because of falling import prices, Schlossberg says.

为了确定，美国纽约巴黎银行SociétéGénérale的美国汇率战略负责人的次奸率思考对出口的强劲影响恰好在过去四个月过去稳定下来。SOCGEN货币战略家只看到美国货币向前欣赏。

由于较低的油价下降，资本支出也是老新闻，拉贾帕和她的同事相信。他们预测经济增长将平均下半年平均为3.5％，而Rajappa将达到2015年的十年财政部底部2.7％。

至于美联储，她和迈克尔的Cloherty，美国RBC资本市场的美国利率战略负责人，不要以为这将等到12月。Cloherty认为美联储将在9月份联邦公开市场委员会会议上采取行动。

Although there’s talk that the Greek mess and China’s stock market stumble could hold the Fed back, “it’s unlikely the Fed will have a clear window in the foreseeable future,” he says. “If they skip September, then they have to worry about year-end liquidity in December. Moving off zero in a wildly illiquid market is a really bad idea.”

Things could get especially tricky for the Fed trying to raise rates in a low-liquidity environment, given that it’s likely to use the largely untested technique of reverse repurchase agreements to help push rates higher.

The International Monetary Fund has recommended that the Fed wait until 2016. But if the Fed moves in the first quarter, it will be tightening into a weak economy, if the performance of the past two first quarters is any guide, Cloherty notes. Gross domestic product shrank 2.1 percent in the first quarter of 2014.

He forecasts a 2.8 percent yield for the ten-year Treasury at year-end.

But Rajappa and Schlossberg see several factors leaving the yield a bit below that level. The European Central Bank’s 60 billion euros ($65.6 billion) of quantitative easing a month will push foreign investors to Treasuries in search of higher yield, she says. And financial turmoil overseas could do the same, Schlossberg points out.

In addition, muted U.S. price increases will keep long-term yields from going up much, he says. The personal consumption expenditures price index, the Fed’s favored inflation gauge, climbed only 0.2 percent in the 12 months through May. The Fed’s continued rollover of its maturing bond positions will also provide support for Treasuries, analysts say.

But the central bank’s rate hikes could roil the Treasury market more than in the past, they say. That’s because of the use of reverse repos and the fact that it’s not committing to raising rates at consecutive meetings as it has in the past. In addition, at some point, speculation will begin about when the Fed will taper its rollovers, which would increase supply in the market.

“喂养率提高速率时，屈服曲线通常会达成”屈服曲线“。”拉杰帕说。“这次它可能会变平稳，然后在会议之间陡峭，因为它将是一次猜测游戏[关于美联储是否会提升速度]。”

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