Interest Rate Paths For Treasury Ten Year

As the pace of growth has picked up, forecasts of ten year Treasury yields have risen as well. Here are some recent ones.

Figure 1: Ten year constant maturity Treasury yields (black), CBO (red), Administration (blue), Survey of Professional Forecasters (teal), and WSJ April (gray x). Dates in graph pertain to forecast finalization.Source: CBO An Update to the Budget and Economic Outlook (July), FY2022 Budget (June), Philadelphia Fed SPF (May), WSJ survey (April). 

While there are some notable divergences, what is true is that through mid-2022, the CBO projection is not far off from professional forecasters as surveyed by WSJ or Philadelphia Fed.

On the other hand, the upward shift in the projected trajectory has largely followed recent actual developments in yields, with reversion to mean in the out years (which is based on 1994-2004 averages of input variables as described in this document).

Figure 2: Ten year constant maturity Treasury yields (black), CBO July 2021 Outlook (red), February (blue), July 2020 (teal), January 2020 (gray). Dates in graph pertain to forecast finalization. Source: CBO, various dates. 

The 50 bps increase in yields for the two year period to 2023 Q2 is about equal to the 40 bps increase in actual yield going from January to June. This pattern of forecast revisions — with predictions generally overshooting actual in recent decades — is not specific to CBO. More on this in this post.