T. Rowe Price Warns Treasury Yields Won't Peak Until Recession

T. Rowe Price Associates Inc warned that U.S. Treasury yields will not reach their peak until the economy enters a recession. Arif Husain, the firm's head of global fixed income, stated that the Federal Reserve System might continue hiking borrowing costs beyond market expectations, which could result in an "overtightening policy mistake."

Husain identified inflation as a more immediate concern than fiscal issues and noted the possibility of a bear flattening or an inversion of the U.S. yield curve. While the benchmark 10-year yield peaked at 5.36% this year due to inflation concerns linked to the Iran war, it later declined to approximately 4.86% as investors returned to sovereign debt following a technology share selloff.

Husain argued that recent Treasury gains were driven by traders closing bearish bets rather than a flight to safe-haven assets. He suggested that yields could top out if developed-market governments take concrete steps to stabilize their finances, citing the rapid climb of French government bond yields in October as a relevant example.