Fixed Income: Tactical signals suggest long-end yields biased higher

The 3% terminal rate implied by Dec 2026 SOFR futures seems about right to us given “bending not breaking” growth and above-target but stable inflation.

However, our tactical models suggest long-end Treasury yields will rise further. Our aggregate net active signals recently triggered a bond sell signal (i.e., yields higher).

10-year US Treasury yields are in line with our fair-value model. Without renewed recession risks, we think long-end yields are biased higher for two reasons.

First, the growth outlook is stable in the US and improving in most other major economies.

Second, there is no sign of fiscal fears easing across DMs, which should continue to push up long-end yields in most economies, especially the UK and other European countries.