Why 10-year Treasury yield may hit 6% in next year or two on ‘problematic’ inflation

Core Insights - U.S. stocks reached all-time highs following September's consumer-price index data, which showed inflation rising slower than expected, supporting potential Federal Reserve interest-rate cuts [1][3] - Despite positive short-term indicators, concerns remain about inflation's trajectory beyond the immediate future, with predictions of a possible rise in the 10-year Treasury yield to 6% or higher [2][5] Economic Indicators - The Dow Jones Industrial Average closed above 47,000, marking its 13th record close of the year, while the S&P 500 and Nasdaq achieved their 34th and 33rd record closes respectively for 2025 [3] - Treasury yields exhibited mixed results, with the 3-year yield falling to 3.49%, contrasting with an overnight fed-funds rate around 4.11% [4] Inflation Trends - Disinflationary trends are observed in various components of inflation, particularly in shelter, although inflation is expected to remain "sticky," delaying the Federal Reserve's return to a 2% inflation target [4] - The economic outlook suggests that the economy may be weaker than market perceptions, leading to anticipated rate cuts by the Federal Reserve [5] Lending and Yield Curve - A potential surge in bank lending may occur once the 3-year Treasury yield surpasses the shorter overnight rate, indicating a shift in market sentiment regarding U.S. growth and inflation [6]