10-year Treasury yields may hit 5%, remain "sticky," BofA strategists say

By David Randall

NEW YORK, Sept 27 (Reuters) - Benchmark 10-year Treasury yields may reach 5% and remain "sticky" as growth in the U.S. economy continues to prove resilient, Bank of America Global Research strategists wrote in a note on Wednesday.

Yields, which move in the opposite direction of prices, are hovering near 16-year highs following recent hawkish rhetoric from the Federal Reserve and a growing budget deficit that will increase supply. The move higher in yields have weighed heavily on the equities market, pushing the S&P 500 down nearly 7% from its July highs while making bond returns more attractive.

The 10-year traded around a yield of 4.5% on Wednesday.

"Yields will likely keep pushing higher until financial conditions tighten and investors de-risk," the firm's strategists noted. "Our bottom line: the path of least resistance is higher rates and steeper curve."

Among the factors supporting the move higher in yields are the strength of the U.S. economy, which continues to defy widespread recession forecasts made at the start of the year, a likely $4.8 trillion in net Treasury issuance before the end of the 2024 fiscal year, and a long bias among investors, the firm noted.

Markets are currently pricing in a 27% chance that the 10-year Treasury yield rises to 5% or above, and a 15% chance that the 10-year yield breaches 5.4%, above its 20-year peak of 5.29% hit in June 2007, the firm noted.

(Reporting by David Randall; Editing by Andrea Ricci)