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December 2022 10-year Treasury yield

December 7, 2021

Summary: A bet on where the 10-year Treasury yield will be on 2022 December 30.

Background

Good Judgment Open asks:

What will be the closing yield for the US 10 yr Treasury on 30 December 2022?

Updates

2022 December 23

Today the rate is 149 BPS. We are equal distance from 100 BPS and 200 BPS. The most likely scenario to me is 2022 being relatively boring and therefore the 10-year yield floating between 100-200 BPS. Lower than 0% is not impossible but highly, highly unlikey. Having a growth scare and dropping between 0-100 BPS seems slightly more likely to me. Moves to 200 BPS and higher are possible though given all the talk about inflation.

2022 December 7

Today the rate is at 146 BPS.

According to CME, the market is forecasting the following probabilities for the Fed Funds Rate (in BPS) on 2022 December 14:

Assuming that the 10-year yield rises along with the Fed Funds Rate, we can map these probabilities to 10-year yields:

Mapping this to the GJO answers:

However, I think the market is underpricing the odds of a deflationary panic. We saw the 10-year yield fall to 60 BPS during the pandemic panic. And the long-term trend is lower yields. I do however agree that yields higher than 3% are unlikely because there's too much debt in the system to handle rates that high. So I will bet against the market a bit here and increase the odds of lower rates a bit. And it's not impossible for rates to be lower than 0% or higher than 3% so I'll assign very small probabilities to those events.