Societe Generale has projected significant shifts in U.S. Treasury yields by the end of 2025. The bank anticipates that the yield on 10-year U.S. Treasury bonds will rise to 4.5%, while the yield on 2-year Treasury bonds is expected to decrease to 3.5%. This forecast stems from the belief that the Federal Reserve will continue lowering interest rates, which would subsequently reduce short-term rates.
However, such monetary policy may also invigorate the economy and elevate the fiscal deficit, increasing demand for long-term government bonds and resulting in higher long-term yields. Moreover, the implementation of tariffs under former President Trump’s policies could raise inflation expectations.
This, coupled with the U.S. government's expected increase in Treasury issuance to manage the fiscal deficit, is anticipated to further elevate yields. These elements together indicate a complex interaction between monetary policy, fiscal strategies, and market expectations, likely leading to considerable changes in the U.S.
bond market over the coming years..