Westpac Evans sees Aussie 10-year yield at 1.9% end-2021

By Sophia Rodrigues

Westpac's chief economist Bill Evans has raised his forecast for US 10-year bond yield to 1.8% from 1.5% by the end of 2021, which has also resulted in an increase in forecast for AUD 10-year yield to 1.9% from 1.55%.

For end-2022, Evans forecasts Australian 10-year yield at 2.5% and 2.5% by end-2024.

Evans' forecasts for the bond rates by end-2021 envisage a further increase of 0.5% in US 10-year rates and Australian 10-year rates.

"That adjustment, given our expectation that inflationary expectations have largely peaked, will still have real yields in negative territory," he wrote in a note.

"But as we move into 2022 and markets observe ongoing above trend growth and begin to speculate on some adjustments in monetary policy real yields should go positive. The further 60 basis point increase in 2022 would see real yields in positive territory in both countries – consistent with a second consecutive year of above trend growth."

Evans admits there are always outstanding risks with such forecasts but with growth prospects improving, central banks committed to maintaining stimulus, and inflationary expectations back to more normal levels gradual net increases in bond rates can be expected..