• Madison Investments expects U.S. Treasury yields to remain elevated due to persistent inflationary pressures, with the 10-year yield likely staying in a 4.25%-4.50% range.
  • Day-to-day volatility may persist, driven by energy prices and tariff uncertainties, though long-dated yields should be capped by economic risks from high energy costs.
  • The U.S. dollar (USD) and Treasuries retain safe-haven status, but trade tariffs could undermine this over time if they reignite inflation.

Stubborn Inflation Anchors Yields Higher

Inflationary pressures will keep U.S. Treasury yields elevated, according to Madison Investments, with the benchmark 10-year note likely trading in a 4.25%-4.50% range. The asset manager cites persistent price pressures from energy and consumer sectors, coupled with robust debt issuance, as key drivers keeping long-end yields anchored at relatively high levels.

“The market is adjusting to a reality where inflation stays above target for longer, slowing the pace of rate easing,” a Madison Investments strategist said, speaking on condition of anonymity. The firm expects day-to-day volatility to remain elevated, driven by fluctuations in energy prices and evolving tariff policies.

Energy Prices and Tariff Risks Cap Long-Dated Yields

While inflationary forces push yields higher, Madison warns that economic risks from high energy prices should cap rises in longer-dated Treasury yields. Soaring energy costs could dampen growth expectations, limiting the upside for 10-year and 30-year bonds. Tariff developments, however, complicate the outlook. If trade disruptions reignite inflation, long-dated yields could break higher, but a severe economic slowdown would drive them lower.

“Tariffs are a double-edged sword,” the strategist added. “They can fuel inflation, but they can also choke growth, so the net effect on long-dated yields is uncertain.”

Safe-Haven Status and Tariff Risk

The U.S. dollar and Treasuries remain safe-haven assets, attracting capital amid global uncertainty. However, Madison notes that escalating trade tariffs could put this status at risk. If tariff-driven inflation forces the Federal Reserve to keep rates higher for longer, it could erode confidence in U.S. assets over time.

Attempts to reach Madison Investments for further comment were not immediately successful.

Correction: An earlier version of this article incorrectly stated the yield range for the 10-year note. The correct range is 4.25%-4.50%.