Ten-year Treasury yield will break out above 1{3c4481f38fc19dde56b7b1f4329b509c88239ba5565146922180ec5012de023f}, Wells Fargo predicts

Wells Fargo Securities’ Michael Schumacher sees the Treasury yield rally picking up momentum.

With the Federal Reserve policy meeting on interest rates underway, the benchmark 10-year Treasury Note yield is edging closer to striking 1{3c4481f38fc19dde56b7b1f4329b509c88239ba5565146922180ec5012de023f}.

“We think in the next month, maybe two on the outside, you’ll see the 10-year top 1{3c4481f38fc19dde56b7b1f4329b509c88239ba5565146922180ec5012de023f} and it should be comfortably above that level by the end of the year,” the firm’s head of macro strategy told CNBC’s “Trading Nation” on Tuesday. 

Over just the past week, the 10-year yield has surged 21{3c4481f38fc19dde56b7b1f4329b509c88239ba5565146922180ec5012de023f}. On Tuesday, it closed at 0.824{3c4481f38fc19dde56b7b1f4329b509c88239ba5565146922180ec5012de023f}.

Due to the improving economic backdrop, Schumacher believes yields have quite a bit more room to go.

“The low-end would be 1{3c4481f38fc19dde56b7b1f4329b509c88239ba5565146922180ec5012de023f}, and the upper bound maybe 1.5{3c4481f38fc19dde56b7b1f4329b509c88239ba5565146922180ec5012de023f},” he said. “Our official call as a firm is 1.15{3c4481f38fc19dde56b7b1f4329b509c88239ba5565146922180ec5012de023f}.”

Schumacher saw a comeback unfolding on “Trading Nation” in late April. According to Schumacher, the 10-year yield was tracking toward one percent within 12 weeks.

“Our confidence level is definitely up by virtue of all these [government] programs,” said Schumacher. “Credit still looks pretty good, and the reason is the Fed has your back.”

It’s a departure from Schumacher’s warning last winter.

When coronavirus fears began grabbing headlines in early February, he predicted they’d drive investors into the U.S. Treasury market as a safe haven play. As a result, yields would plummet.

Schumacher was right. By early March, the 10-year yield touched a record low.

Now as the virus pandemic gets under control and the economy improves, Schumacher believes the bias is higher. So, he’d stay toward the short end, and avoid longer-term 10 and 30-year Treasury Notes.

“We just outlined a case for yields to go quite a bit higher,” Schumacher said. “So, it’s not a really appealing option to be buy longer-term Treasurys.”