US rates and a triple whammy of obstacles to overcome

US 10-year Treasury yields are likely to rise towards 5.25% to 5.50% by early 2027 before falling to 4.50% to 4.75% later in the year as inflation eases.

• AI-driven productivity growth, fiscal deficits and a higher term premium are expected to keep real yields and nominal Treasury yields under upward pressure through the first quarter of 2027.
• AI-related debt issuance could increasingly outweigh productivity benefits as the stock of outstanding debt grows, adding a stronger crowding-out effect after substantial issuance in 2026.
• The 10-year US swap spread is below 40 basis points, while ING expects it to widen towards 50 basis points or more and the 30-year spread to return towards 75 basis points unless the Treasury cuts long-end issuance or increases buybacks.
• ING identifies three routes towards a 6% 10-year yield: GDP growth reaching 3% to 4%, a fiscal deficit rising from its recent 6% to 6.5% range towards 7% to 8%, or inflation remaining around 3% or moving higher.
• The article attributes the February 2026 bond sell-off to the Iran war and elevated realised inflation, while longer-term inflation expectations remain relatively benign.

Takeaway: The preferred scenario is a rise in 10-year yields towards 5.25% to 5.50% before inflation declines and rate cuts are repriced later in 2027, although persistent inflation or weaker fiscal discipline could keep yields near 6%.