BNP Paribas Warns Long-Term Treasury Yields May Rise to 5.6% Amid Fiscal Pressures

BNP Paribas said in a client note on Tuesday that it expects the yield on the 30-year U.S. Treasury bond to climb to about 5.6% in the coming months, up from roughly 5.4% at the time of the report. The bank linked the outlook to three factors that could deepen the current sell-off in fixed-income markets.

First, the Federal Reserve is expected to continue its rate-hike cycle, having raised rates by 25 basis points in September and possibly implementing two more hikes in 2026 and another by April 2027. > "If the Fed delivers the four hikes priced in by the market, the Treasury's interest burden will go up by USD 116 bn in the first year, and about USD 168 bn by year two," wrote Guneet Dhingra, head of U.S. rates strategy at BNP.

Second, the U.S. budget deficit is projected to widen again, driven by tariff rollbacks, refunds and the recent rise in long-term interest rates, creating a feedback loop that could further lift yields.

Third, the bank cautioned that investors may be underestimating fiscal spending after the midterm elections, noting that previous expectations of reduced spending did not materialize after the 2018 elections. Defense spending, for example, is set to increase after the Senate Armed Services Committee approved a $250 billion boost to the defense budget.

BNP concluded that these fiscal risks make higher back-end yields the most likely outcome.