Should US 10yr yield break higher than 3.5%? - ING

Analysts at ING explained that there is no firm evidence that the US 10yr yield should break higher than 3.5%.

Key Quotes:

"We find that a material rise in core inflation to 2.5% would be required to make this happen. So not improbable, but not our base view. Hence the notion that the 10yr rate should settle somewhere between 3% to 3.5%.

Our point estimate is 3.4%, which also helps project the prognosis that any break above 3% would be sustained for at least a few quarters. 

To get above 3% in the first place, there needs to be a market discount where imminent inflation risks trump medium-term growth recession risks. And by the way, we see the Fed funds rate heading towards a terminal value towards 3% on similar reasoning. The end game, in fact, sees the curve flattening out completely with the three handle heavily in play. 

Having marked these, subsequent rates moves would indeed then be lower."