Where Are Treasury Yields Headed?

The yield on 10-Year Treasuries has declined to just around 5% today as US bond investors are shifting from riskier corporate bonds into safer government bonds.  As far as global yields are concerned, the 5% yield on the 10-Year US Treasury is right in the middle of the rate spectrum when compared to other countries.  As shown below, Japan currently has the lowest 10-year yield while Indonesia has the highest of the countries we analyzed.

Bloomberg polls a large amount of economists for their interest rate projections on the government bonds of various countries.  Based on the average economist estimates over the next 5 quarters, we have calculated the expected percentage change in bond yields from their current levels.  As shown, economists are expecting the 10-Year US Treasury yield to increase 5.6% to 5.28 by the third quarter of 2008.  While this is an increase, it is still a historically low number.  Japan's 10-year yield is expected to increase 15.79%, but that only amounts to a change from 1.9% to 2.2%.  Of the countries whose yields are currently in the 4 to 6 range, Canada is expected to have the largest increase by 3Q '08 (13.91%).  Economists are currently bullish on long-term government bonds (i.e., expecting yields to fall) in Switzerland, Czech Republic, Poland, Mexico, South Africa, Taiwan and Indonesia.

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