(Bloomberg) -- Charles Schwab joined a growing list of Wall Street firms predicting Treasury yields will stay low following a record-setting rally, even as U.S. debt is on pace for its second-straight weekly decline.

Morgan Stanley and Northern Trust are among those who said this week that yields could set fresh lows in the months ahead. T. Rowe Price Group envisions a tug-of-war between global demand for Treasuries and stronger U.S. economic data that will keep interest rates in a range.

Treasuries have surged in 2016 as an alternative to bond yields below zero in Europe and Japan after central banks there adopted negative rates to spur economic growth. The European Central Bank said Thursday that it plans to keep key rates at or below current levels “ for an extended period of time.” Fund managers boosted Treasury holdings to 24.3% of assets in the seven days ended Tuesday, the highest since the period ended May 3, according to a weekly survey conducted by Stone & McCarthy Research Associates, a fixed-income research firm in Princeton, New Jersey.

“Yields may have hit generational lows, but it’s unlikely they will rise sharply or substantially any time soon,” Kathy A. Jones, who’s in charge of interest rate and currency analysis for San Francisco-based Charles Schwab, wrote on the company’s website Wednesday. “The forces holding yields down -- slow growth, deflationary pressure from abroad, a firm dollar and demographic trends -- are likely to remain intact.”

The benchmark U.S. 10-year note yield increased three basis points, or 0.03 percentage point, to 1.61% as of 9:51 a.m. in New York, after touching the highest on an intraday basis since June 24, according to Bloomberg Bond Trader data. The price of the 1.625% security due in May 2026 was 100 1/8. The yield dropped to a record low of 1.32% on July 6.

Yields are on pace for their second straight weekly increase, which would be the first such losing streak since May.

For an article on J.P. Morgan Asset’s views on risks in the Treasury market, click here.

The Treasury market’s 5% return in 2016 is at stake should an improving U.S. economy add to bets for the Federal Reserve to raise interest rates.

Citigroup’s U.S. Economic Surprise Index, which measures whether data beat or miss forecasts, has surged this month, rising to the highest since January 2015. Expectations for the Fed’s next move have adjusted as a result: Futures contracts indicate a 48% chance the central bank will raise its benchmark by the close of 2016, near the likelihood seen before the U.K. vote to leave the European Union on June 23.


The number of applications for U.S. unemployment benefits unexpectedly fell last week, reaching a three-month low, a report from the Labor Department showed Thursday. For 72 consecutive weeks, claims have been below the 300,000 level that economists say is typically consistent with an improving job market. That’s the longest stretch since 1973.

The U.S. is scheduled to sell $13 billion of 10-year Treasury Inflation Protected Securities Thursday. Consumer prices in the nation are rising at about a 1% year-on-year rate.

Even if inflation picks up to the central bank’s 2% target pace and policy makers raise interest rates this year, investors, particularly those outside the U.S., will still look to add Treasuries, said Jones from Charles Schwab. Foreign investors are “desperate for positive yields,” she said.

One example: Fukoku Mutual Life Insurance, which has $61.7 billion in assets. It plans to buy Treasuries if 10-year yields rise to 2%.

“I believe the Fed will hike interest rates this year,” said Yoshiyuki Suzuki, the company’s head of fixed income in Tokyo. “They will go up -- I hope."

Subscribe Now

Access to premium content including in-depth coverage of mutual funds, hedge funds, 401(K)s, 529 plans, and more.

3-Week Free Trial

Insight and analysis into the management, marketing, operations and technology of the asset management industry.