"But could a combination of factors – not least fiscal largesse in a US election year – push the 10-year yield up from its current near 4 per cent level?
"Yes, I believe the 10-year treasury yield will test the 5 per cent threshold in the next six months, steepening the yield curve.
"There are three dynamics at play. First, Fed rate cuts could limit yield increases on short-maturity treasury bills. Second, ongoing issuance by the Treasury to fund the government’s deficit spending is flooding the market with new supply.
"And finally, the Fed’s quantitative tightening has taken a large, reliable buyer of treasuries out of the market, further skewing the balance of supply and demand in favour of higher yields."
David Thorpe is senior investment editor at FT Adviser
