Key Takeaways:
Deutsche Bank sees the 10-year US Treasury yield climbing to 4.70% by year-end, the highest since late 2023, as the new Fed chief halts the rate-cutting cycle.
Deutsche Bank strategists raised their year-end 10-year US Treasury yield forecast to 4.70%, up from 4.45%, on the view that Federal Reserve Chair Kevin Warsh has concluded the central bank's rate-cutting cycle.
"The Fed under Warsh has signaled a definitive pause, and the market is still repricing for that reality," said Matthew Raskin, head of US rates strategy at Deutsche Bank, in a note to clients.
The new target of 4.70% compares with the current yield of about 4.45% and marks a reversal from the bank's prior forecast, which had also stood at 4.45%. The revision reflects a shift in the rate path under Warsh, who took office in early 2026 and has emphasized inflation vigilance over further accommodation. The fed funds rate currently sits at 4.50% to 4.75% after the last 25-basis-point cut in January, and OIS markets now price less than a 40% probability of another reduction by December.
A sustained move toward 4.70% would raise borrowing costs across the economy, pressuring risk assets from equities to corporate credit while strengthening the US dollar. The next Fed meeting on June 17-18 will offer the first formal test of whether Warsh's stance aligns with the market's new expectations.
The repricing has been underway since Warsh's first press conference in March, when he signaled that the easing cycle — which delivered 75 basis points of cuts through early 2026 — had run its course amid persistent inflation. The January CPI report, the first under Warsh, showed prices rising faster than expected, reinforcing the case for a prolonged hold. The 10-year yield has already climbed from a low of 3.80% in February to current levels near 4.45%, reflecting a rapid unwind of rate-cut expectations.
Rate Differentials Drive the Repricing
The shift in US rate expectations is rippling through global bond markets. The dollar has strengthened against major peers as the yield advantage widens, while rate-sensitive sectors of the S&P 500 — particularly real estate and utilities — have underperformed the broader index by 4% since Warsh's March signal, according to data compiled by the bank.
Deutsche Bank's strategists, including Steven Zeng, noted that the market is still pricing in a 40% probability of a rate cut by December, a view they consider too dovish. "The data simply does not support further easing," Raskin said. "If anything, the risk is tilted toward the next move being a hike, not a cut."
For fixed-income investors, a 4.70% 10-year yield would represent the highest level since October 2023, when the yield briefly touched 5.0% before retreating. The last time the 10-year yield rose above 4.70% in a sustained manner, the S&P 500 fell 8% over the subsequent quarter while the Bloomberg US Aggregate Bond Index posted negative total returns.
The June FOMC meeting will be the key event. If Warsh and his colleagues deliver a hawkish hold — keeping rates unchanged while reiterating inflation concerns — the 10-year yield could test 4.60% within days, Deutsche Bank said. A surprise hike, while not the base case, would push yields above 5.0%.
This article is for informational purposes only and does not constitute investment advice.
