BlockBeats report: On September 25, Bank of America raised its year-end forecast for the U.S. 10-year Treasury yield from 4.5% to 5%, and also increased its forecast for the 2-year Treasury yield to 5%. Notably, prior to this revision, the U.S. 10-year Treasury yield had already risen to 5.14% on September 23, reaching its highest level since 2007. Thus, the key message of this report is not that yields will mechanically continue to rise, but that markets will face a prolonged period of higher interest rates.
Bank of America lists Iran-related energy risks, U.S. fiscal pressure, trade tensions, and uncertainties surrounding AI investment and macroeconomic prospects as key variables, raising its forecast for the average Brent crude oil price in the second half of this year from $83 to $95 per barrel. If oil prices remain elevated for an extended period, they could elevate inflation expectations and increase pressure on the Federal Reserve to maintain a tighter monetary policy.
For risk assets, a 10-year yield holding near 5% will simultaneously impact valuations and capital flows. Higher risk-free rates reduce the present value of future cash flows, placing first pressure on the valuations of growth stocks, AI infrastructure stocks, and high-valuation tech stocks. Rising Treasury yields also increase corporate financing costs and enhance the relative attractiveness of dollar-denominated assets compared to highly volatile assets like cryptocurrencies. Markets have already identified "disorderly rises in bond yields" as a primary tail risk, surpassing concerns over an AI valuation bubble.
However, Bank of America’s rate hike does not equate to a full shift to a bearish stance on stocks. Its September market outlook still suggests that a temporary pullback, driven by fluctuations in oil prices, yields, and interest rate expectations, could present a buying opportunity. Moving forward, the trajectory of crude oil, inflation data, the Fed’s policy path, and U.S. fiscal financing pressures will determine whether the 5% yield is merely a short-term peak or a new valuation anchor that risk assets must adapt to in the fourth quarter.