Treasury 10-year yield on May 1, 2026?

Primary dealers significantly revised terminal federal funds rate forecasts upward. Between the New York Fed's May 2025 and January 2026 market participant surveys, the consensus forecast for the terminal federal funds rate saw a substantial 75-basis-point increase. In May 2025, primary dealers projected a median federal funds rate target range midpoint of 4.625% for year-end 2025, indicating this as the cycle's peak before anticipated rate cuts ^[1]. However, by January 2026, dealers viewed the prevailing 5.375% as the terminal rate, expecting it to persist through the first quarter of 2026 before any rate reductions ^[2].

Changes in rate expectations typically influence 2-year Treasury yields. Such adjustments in the expected federal funds rate generally impact Treasury yields, with the 2-year Treasury yield being particularly sensitive to short-term interest rate expectations ^[3]. As the projected terminal federal funds rate increased between these surveys, the 2-year Treasury yield would typically be expected to rise in response ^[3]. A higher anticipated federal funds rate generally translates to a higher yield for this debt. However, specific historical data for the 2-year Treasury yield corresponding to these survey periods were not explicitly provided in the research ^[3].

The Congressional Budget Office (CBO) projects substantial increases in U.S. marketable Treasury debt. The CBO's "The Budget and Economic Outlook: 2025 to 2035" indicates that the net issuance of marketable Treasury debt, representing the increase in debt held by the public, is projected to be approximately $1.8 trillion in 2025 and an additional $1.9 trillion in 2026 ^[1]. It is important to note that CBO's outlooks provide overall debt and deficit projections but do not typically disaggregate the net issuance by specific maturity lengths, such as debt with maturities longer than 5 years ^[1], ^[5].

Both foreign and domestic investors historically absorb U.S. Treasury debt. The absorption of U.S. Treasury debt, particularly longer-term securities, depends on both foreign and domestic buyers. As of early 2024, foreign investors held approximately $8.08 trillion in U.S. Treasury securities, accounting for about 29-30% of the total marketable debt held by the public ^[2], ^[3], ^[4]. Historically, foreign demand, especially from private foreign investors, has been a key factor in absorbing longer-term U.S. Treasury securities ^[6], ^[3]. The remaining approximately 70-71% of marketable Treasury debt is held by a diverse array of domestic investors.

Future absorption of projected debt requires sustained strong demand. The projected net issuance of $1.8 trillion in 2025 and $1.9 trillion in 2026 represents a substantial supply of new Treasury debt that will need to be absorbed by both foreign and domestic markets ^[1]. While the CBO does not specify the maturity profile of this projected net issuance, the Treasury Department consistently issues debt across the entire maturity spectrum, including notes and bonds with maturities longer than 5 years ^[7]. The sheer scale of this anticipated new debt necessitates continued robust demand from both foreign and domestic buyers to maintain market stability. Historical foreign participation has been particularly crucial for longer-term securities given the rising supply stemming from increasing deficits ^[6], ^[3].

Inflation expectation indicators are crucial for understanding market sentiment. The 10-Year Breakeven Inflation Rate (T10YIE) reflects the market's expectation of average annual inflation over the next decade, derived from the difference in yields between nominal Treasury securities and Treasury Inflation-Protected Securities (TIPS) ^[1]. Similarly, the 5-Year, 5-Year Forward Inflation Expectation Rate (T5YIFR) represents the expected average inflation rate over a five-year period that begins five years from today ^[2].

Q1 2026 daily forecasts for inflation rates are unavailable. While these indicators are crucial for understanding inflation expectations, the available web research results primarily offer historical data and current values. The provided sources do not contain specific daily forecasts or projections for Q1 2026 for either T10YIE or T5YIFR. For example, TradingEconomics provides historical data for T5YIFR and a 2027 forecast, but not the detailed Q1 2026 daily data required to calculate an average ^[3].

Calculating future average daily inflation values is not possible. Without these specific future daily data points, it is not feasible to determine the average daily value of the 10-Year Breakeven Inflation Rate throughout Q1 2026. Consequently, it is also not possible to assess its consistency with the inflation swap market's pricing for the 5-year, 5-year forward inflation expectation rate for that particular future period.

Japan's Treasury holdings showed a short-term increase amidst repatriation discussions. From mid-2025 to early 2026, Japan's holdings of long-term U.S. Treasury securities increased in January 2026, contributing to a rise in overall foreign ownership ^[1]. However, this period was also marked by discussions regarding the potential repatriation of up to $1.1 trillion of its U.S. Treasury holdings in 2025 ^[2]. This strategic consideration was likely driven by the need to support the Japanese yen and finance significant domestic government debt ^[2]. While specific short-term data indicated an increase, Japan's broader trend involved underlying pressures for long-term portfolio adjustments.

China consistently reduced its U.S. Treasury holdings during this period. In contrast to Japan, China consistently reduced its U.S. Treasury holdings throughout mid-2025 to early 2026, continuing a "years-long retreat" ^[3]. By February 2026, China's total holdings of U.S. Treasuries had fallen below $800 billion ^[3]. This sustained reduction reflects a deliberate adjustment in China's currency reserve management policies, influenced by factors such as geopolitical considerations, diversification efforts, and a strategic move to lessen exposure to U.S. assets ^[3]. China's divestment indicates potential risks and suggests a continued trend of reducing or maintaining lower levels of U.S. Treasury holdings ^[3].

The March 2026 FOMC meeting set the median 'longer run' rate. At the Federal Open Market Committee's (FOMC) Summary of Economic Projections (SEP) in March 2026, the median 'longer run' federal funds rate projection was indicated as 2.6 percent ^[1]. This projection reflects individual FOMC participants' anticipated rate for the federal funds rate to settle over the longer term, consistent with sustainable economic growth and stable inflation.

Participants' projections clustered evenly around the median rate. Of the 19 participants who submitted projections in the March 2026 'dot plot' ^[1], the distribution around the 2.6 percent median showed a balanced clustering. Six participants projected a 'longer run' federal funds rate above the median ^[1], while an equal number, six participants, projected it below the median ^[1]. The remaining seven participants projected the rate precisely at the median of 2.6 percent ^[1].