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Chart of the Week

Weekly chart using economic data to address timely market topics from the Wells Fargo Investment Institute Global Investment Strategy team.

April 16, 2024

Global Investment Strategy Team

Why we expect 10-year Treasury yields to remain above 4%

The chart is used to decompose nominal 10-year U.S. Treasury yields as the summation between real rates and inflation expectations. 10-year TIPS are used to represent real 10-year U.S. Treasury yields and 10-year inflation expectations use breakeven inflation as a proxy. The chart shows that real rates turned positive in May 2022, just as the Fed began embarking on a mission to raise policy interest rates. Inflation expectations have also been consistently above 2% over the period.Sources: Bloomberg and Wells Fargo Investment Institute. Daily data from January 1, 2010 to March 27, 2024. The real yield is proxied by the yield on the 10-year U.S. Treasury Inflation Protected (TIP) note. The inflation expectations component is proxied by the implied inflation rate on the TIP note. For illustrative purposes only. Past performance is no guarantee of future results. Excerpted from Institute Alert (April 15)

Real yields along with our economic targets suggest longer-term rates likely to trend higher

We made a number of forecast changes in our recent Institute Alert, many linked to our view that accommodative financial conditions merit upward revisions of our forecasts for U.S. gross domestic product growth and Consumer Price Index inflation. However, two things that did not change were our 10-year and 30-year U.S. Treasury yield forecasts for year-end 2024 (4.25% – 4.75% and 4.50% – 5.00%, respectively).

Some investors may wonder why our interest rate forecasts for year-end 2024 and 2025 are consistently above 4%, especially because the majority of consensus estimates appear to be below this figure. The chart above helps explain — real yields on 10-year Treasuries have typically been positive and have recently approached 2%. If our economic growth forecast of 2% is accurate, and if inflation stays above 2% as we expect, then we believe it reasonable for investors to demand at least 4% for a 10-year Treasury yield.

What it may mean for investors

Until we see more evidence of economic slowing and moderating inflation, investors should assume that the near-term trend for longer-term rates is higher. Should long-term interest rates test the upper end of our 2024 year-end target range, we would encourage income-oriented investors to consider locking in rates in longer maturities. We maintain our most favorable guidance on U.S. Short Term Taxable Fixed Income as the Federal Reserve remains on pause.

Risk Considerations

Forecasts, estimates, and projections are not guaranteed and are based on certain assumptions and views of market and economic conditions which are subject to change.

Each asset class has its own risk and return characteristics. The level of risk associated with a particular investment or asset class generally correlates with the level of return the investment or asset class might achieve. Bonds are subject to market, interest rate, price, credit/default, liquidity, inflation and other risks. Prices tend to be inversely affected by changes in interest rates. Although Treasuries are considered free from credit risk they are subject to other types of risks. These risks include interest rate risk, which may cause the underlying value of the bond to fluctuate. Treasury Inflation-Protected Securities (TIPS) are subject to interest rate risk, especially when real interest rates rise. This may cause the underlying value of the bond to fluctuate more than other fixed income securities. TIPS have special tax consequences, generating phantom income on the “inflation compensation” component of the principal. A holder of TIPS may be required to report this income annually although no income related to “inflation compensation” is received until maturity.


Consumer Price Index (CPI) produces monthly data on changes in the prices paid by urban consumers for a representative basket of goods and services.

General Disclosures

Global Investment Strategy (GIS) is a division of Wells Fargo Investment Institute, Inc. (WFII). WFII is a registered investment adviser and wholly owned subsidiary of Wells Fargo Bank, N.A., a bank affiliate of Wells Fargo & Company.

The information in this report was prepared by Global Investment Strategy. Opinions represent GIS’ opinion as of the date of this report and are for general information purposes only and are not intended to predict or guarantee the future performance of any individual security, market sector or the markets generally. GIS does not undertake to advise you of any change in its opinions or the information contained in this report. Wells Fargo & Company affiliates may issue reports or have opinions that are inconsistent with, and reach different conclusions from, this report.

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