US 10-year yields will probably top out at 5%: State Street CEO

THE yield on 10-year US Treasuries will “probably” top out at 5 per cent, according to the head of one of the world’s largest asset managers.

“If you talk to our chief investment officer, she would say this is the time to start thinking about adding some duration,” State Street chief executive officer Ron O’Hanley said in an interview with Bloomberg TV on Tuesday (Oct 23). “I don’t think anyone can call the top, but when you look at the 10-year just touching a bit over 5 per cent, probably it is.”

Yields on 10-year Treasuries exceeded 5 per cent for the first time since 2007 on Monday and then retreated. They have surged a full percentage point since early August as policymakers signalled rates will stay higher for longer. For now, officials in the Federal Open Market Committee see the continued run-up in borrowing costs as a feature of their bid to tame inflation rather than a drawback, as tighter financial conditions help cool economic growth.

The spike was due to a combination of concerns over inflation and the rising cost of debt, O’Hanley said. “The Fed has a tough job. They’re doing what they need to do, which is being really focused on the data, not calling the wind too early, but pausing as they have done now.”

Speaking on the sidelines of the annual Future Investment Initiative in Saudi Arabia, O’Hanley said geopolitics were weighing on the markets now as much as anything and said the Israel-Hamas conflict “really demands a quick resolution.”

“Investors in the world at large are looking at this and taking a pause,” he said. “It’s weighing on markets, and much more importantly on world politics – how nations are squaring off against each other.” BLOOMBERG