T. Rowe Sees German Fiscal Push Emboldening 6% US Yield Call

T. Rowe Price sees Germany’s historic spending push as lending support to the money manager’s contrarian view that 10-year US Treasury yields will eventually reach 6%. 

“Long-maturity developed market government bond yields are heading significantly higher” as Germany joins others vying to raise more debt, Arif Husain, the firm’s chief investment officer of fixed-income, wrote in a note. Benchmark Treasury yields may hit 6% over the next year and a half, according to the near three-decade market veteran who helps T. Rowe oversee $295 billion.

His call bucks a tide of bullish wagers as traders expect the Federal Reserve to cut interest rates to counter economic headwinds from Donald Trump’s tariff war. The 10-year yield was at 4.24% on Friday, down from this year’s high of 4.81% in January, with swap markets pricing in more than two quarter-point reductions by the end of December.

Husain has been calling for higher rates since late 2024 — expecting 5% to be reached in the first quarter of this year before potentially hitting 6% — on US budget deficits and President Trump’s inflationary policies. While the projections have yet to materialize, the CIO sees Germany’s fiscal plan as a game changer in financial markets that will intensify competition for governments to fund via debt issuance.

Husain helps manage a global government bond fund that gained 6.2% over the year to end-February, outperforming a FTSE benchmark by more than one percentage point, the company’s fact sheet showed. 

He and his colleagues beat peers in 2022 when the T. Rowe Price Dynamic Global Bond Fund managed to post a gain even as the Fed hauled up interest rates to tackle sticky inflation. He also warned about the impact of rising Japanese rates in June 2023, when the yen was trading around 140 per dollar. The currency weakened to as low as 161.95 per dollar in July 2024. 

“In the longer run, I believe there is a distinct path to higher bond yields and steeper curves as three of the major levers of the world economy — the US, Germany, and China — are all likely to provide stimulus to support their economies,” benefiting risk assets, he wrote. 

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