GF SEC: What Should the Central Level of the 10-Year U.S. Treasury Yield Be?

GF SEC released a research report stating that, reviewing this year, U.S. nominal GDP grew 5.8% and 6.3% year-on-year in Q1 and Q2 respectively, while the average 10-year U.S. Treasury yield was 4.2% and 4.4% respectively, roughly below normal valuation. From June to October, rates rose noticeably, with monthly midpoints of 4.6%, 4.7%, 5.0%, and 5.1% respectively. Q3 U.S. nominal growth data actually did not rise further from Q2, at 5.9% year-on-year. If we roughly estimate based on nominal GDP growth of around 6.0% year-on-year in the second half and a 1.3x valuation, the 10-year U.S. Treasury yield should theoretically be around 4.6%. Therefore, the rate trend since Q3 contains other pricing factors. Looking ahead to 2027, with a higher inflation base, U.S. nominal GDP growth will most likely be slightly lower than this year. The Federal Reserve forecasts real growth year-on-year of 2.3% and 2.4% for 2026-2027 respectively, and PCE price year-on-year of 3.7% and 2.3% respectively. Considering that PCE is more affected by energy prices and imported goods prices, the deflator will be somewhat more resilient. Assuming U.S. nominal GDP growth slows to around 5.2% year-on-year, based on the 1.3x empirical relationship, this theoretically corresponds to a 10-year U.S. Treasury yield of around 4.0%. The main views of GF SEC are as follows: First, what should the midpoint of the 10-year U.S. Treasury yield be? From a macro framework perspective, nominal GDP growth is an important reference anchor for long-term nominal interest rates; the two reflect real growth plus inflation compensation from macro and micro perspectives respectively. Observing U.S. data, the average ratio of nominal GDP growth to the 10-year U.S. Treasury yield from 2000 to 2019 was 1.3x; from 2020 to Q2 2023, due to the dual impact of the special economic environment and special-period monetary policy, the ratio had no reference value; the 13-quarter average since Q2 2023 returned to 1.3x, and the quarterly average over the past two years since 2025 is also around 1.3x. Reviewing this year, U.S. nominal GDP grew 5.8% and 6.3% year-on-year in Q1 and Q2 respectively, while the average 10-year U.S. Treasury yield was 4.2% and 4.4% respectively, roughly below normal valuation. From June to October, rates rose noticeably, with monthly midpoints of 4.6%, 4.7%, 5.0%, and 5.1% respectively. Q3 U.S. nominal growth data actually did not rise further from Q2, at 5.9% year-on-year. If we roughly estimate based on nominal GDP growth of around 6.0% year-on-year in the second half and a 1.3x valuation, the 10-year U.S. Treasury yield should theoretically be around 4.6%. Therefore, the rate trend since Q3 contains other pricing factors. We speculate that the rate level being above the theoretical midpoint during this period, and gradually rising, has two main reasons: first, it is related to inflation expectationsthe geopolitical direction was uncertain, oil prices gradually rose overall from July to October, and the market at one point worried that the Fed would raise rates in October; second, it is related to AI companies issuing large amounts of long-term debt, a new phenomenon not encountered before, which has had a certain impact on the supply-demand structure for long-term bonds. Since November, with the October rate hike ruled out and oil price trends easing, the 10-year U.S. Treasury yield has returned below 5%, reaching 4.86% on November 6, initially returning toward the theoretical midpoint. Looking ahead to 2027, with a higher inflation base, U.S. nominal GDP growth will most likely be slightly lower than this year. The Federal Reserve forecasts real growth year-on-year of 2.3% and 2.4% for 2026-2027 respectively, and PCE price year-on-year of 3.7% and 2.3% respectively. Considering that PCE is more affected by energy prices and imported goods prices, the deflator will be somewhat more resilient. Assuming U.S. nominal GDP growth slows to around 5.2% year-on-year, based on the 1.3x empirical relationship, this theoretically corresponds to a 10-year U.S. Treasury yield of around 4.0%. Of course, this can only serve as a macro thinking anchor; a series of factors still exist that cause the actual rate level to be higher than this standard: first, the slowdown in U.S. nominal GDP growth along with rate hikes is a gradual process, so the corresponding slowdown in rates is also a gradual process; second, at least in the first half of next year, the trend of AI capital expenditure expansion will continue, and AI companies issuing long-term debt will continue to push up term premiums to some extent; third, the rate hike cycle will bring dynamic pricingaccording to the current mainstream market expectations, the U.S. may still raise rates in the first half of next year, and rising policy rates and policy uncertainty will constrain the decline in market rates. Considering the slowdown in nominal GDP growth plus the constraint factors, it is reasonable for the 10-year U.S. Treasury yield to fall in the 4.0-4.5% range, similar to the midpoint in the first half of 2026. The 2026 macro picture has two main threads: first, the pricing of AI supply; second, the pricing of rising U.S. Treasury yields. After 2027, the first thread may ease somewhat; the key is whether new changes form in the first thread, such as a new narrative on the demand side. Second, global assets are trading the landing of the U.S. midterm elections, uncertainty over AI policy, and the retreat of geopolitical premiums; U.S. equities are range-bound, the bond market is recovering, domestic stocks and bonds are both strong, the geopolitical premium in crude oil is cleared out, gold is rebounding after an oversold drop, and the dollar is range-bound with a firm bias. The "blue wave" in the U.S. midterm elections has landed, the Philadelphia Semiconductor Index fell 12.15% for the week, the Nasdaq led declines, and Japanese and South Korean stock markets came under deep pressure. The 10-year U.S. Treasury yield fell 8BP to 4.86%. Domestic small-cap growth shows the advantage of a "counterattack option," with the market unfolding along AI applications, and the all-A valuation deviation at +0.08 still offers cost-effectiveness.