Expert perspective

As policy tightens, expect only modest yield rises

June 11, 2021

Alexis Gray's headshot

Vanguard Asia-Pacific senior economist

Monetary policy
Prepare for policy rate lift-off … but not immediately
The table shows when Vanguard expects the U.S. Federal Reserve, the Bank of England, and the European Central Bank to raise their short-term interest rate targets, as well as our forecasts for these targets in 2025 and 2030, as follows: Federal Reserve, third-quarter 2023 lift-off date, 1.25% rate target in 2025, 2.5% rate target in 2030; Bank of England, first-quarter 2023 lift-off date, 1.25% rate target in 2025, 2.5% rate target in 2030; European Central Bank, fourth-quarter 2023 lift-off date, 0.6% rate target in 2025, 1.5% rate target in 2030.
Three scenarios for 10-year bond yields
The illustration shows Vanguard forecasts for yields on 10-year U.S. Treasury bonds under three scenarios. Our forecast for the end of December 2030 in a recessionary scenario is 2.3%; in our base-case reflation scenario, 3.3%; in a super-hot recovery scenario, 4.1%.
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