US Treasury yields may settle at 4.75% but 5.35% spike possible: SBI report
Synopsis
An SBI Ecowrap report warns that US Treasury yields — already elevated near 4.9% — could briefly spike to 5.35% around mid-term elections before settling near 4.75%. A $304 billion excess supply of US government bonds, nearly double the 2015 mismatch, is the structural driver. India has partially insulated itself through bond buybacks, but the India-US yield spread at 250 bps leaves little room for complacency.
Key Takeaways
SBI Ecowrap projects 10-year US Treasury yields settling near 4.75 per cent in the most likely scenario.
A short-term spike to 5.25–5.35 per cent is possible around the US mid-term elections .
Excess US Treasury supply is estimated at $304 billion , against a US fiscal deficit of 6.15 per cent of GDP — more than double the $140 billion mismatch seen in 2015 .
Papers above 10 years account for roughly $108 billion of the excess supply; the 1–5-year segment contributes around $96 billion .
India has reduced its gross borrowing requirement by ₹1.23 lakh crore via bond switches and buybacks, partially cushioning domestic yield pressure.
The India-US 10-year G-Sec yield spread stands at around 250 basis points , with India at 7.43 per cent and the US at 4.93 per cent .
The 10-year US Treasury yield could stabilise at around 4.75 per cent over the medium term, but a short-term surge to 5.25–5.35 per cent cannot be ruled out, particularly around the US mid-term elections, according to the SBI Ecowrap report released on Sunday, 1 November. Yields have already moderated from recent peaks but continue to hover near elevated levels of approximately 4.9 per cent, the report noted.
The Demand-Supply Mismatch Driving Yields Higher
At the heart of elevated US Treasury yields is a growing imbalance between the supply of government securities and investor absorption capacity. The SBI Ecowrap report estimates an excess supply of $304 billion in US Treasuries, consistent with a US fiscal deficit of 6.15 per cent of GDP. For context, a comparable mismatch in 2015 was significantly smaller — around $140 billion — when the US fiscal deficit stood at just 2.5 per cent of GDP.
The maturity-wise breakdown reveals that pressure is concentrated in longer-duration securities. Papers with tenures above 10 years account for roughly $108 billion of the excess supply, while the 1–5-year segment contributes around $96 billion, according to the report.
Most Likely Scenario: Yields Around 4.75 Per Cent
The report's base-case projection points to 10-year US Treasury yields settling near 4.75 per cent. The rationale hinges on the outcome of the US mid-term elections: if Democrats secure a favourable verdict, the report argues, their historical tendency toward fiscal prudence could prompt meaningful steps to contain government borrowing requirements post 9 November. Such measures, combined with the potential reopening of the Strait of Hormuz, could ease yield pressures.
Alternatively, fiscal consolidation through expenditure rationalisation and reduced borrowing could moderate yields further — though such an approach would weigh on US economic growth and potentially weaken the Dollar Index, the report cautioned.
Tail Risk: A Deeper Fiscal Crisis
In the unlikely scenario where no corrective fiscal steps are taken, the SBI Ecowrap report warns that the US could head toward a deeper crisis, marked by a higher fiscal deficit and mounting accumulated debt. This scenario would keep yields elevated or push them into the 5.25–5.35 per cent range, amplifying stress across global bond markets.
India's Position: Managed Borrowing Provides Cushion
A parallel assessment for India indicates an excess supply of approximately ₹1.52 lakh crore in domestic government securities. However, unlike the US, the Indian government has proactively managed its borrowing programme through bond switches and buybacks, bringing down the gross borrowing requirement by ₹1.23 lakh crore — with scope for further reduction, the report said.
The 10-year G-Sec yield spread between India and the US currently stands at around 250 basis points, with India's benchmark yield at roughly 7.43 per cent and the US yield at 4.93 per cent. This spread offers Indian policymakers some room, but sustained US yield elevation would continue to exert pressure on foreign portfolio investor (FPI) flows and the Indian rupee.
What to Watch Next
The trajectory of US Treasury yields in the coming weeks will hinge on mid-term election outcomes, the pace of US fiscal adjustment, and Federal Reserve commentary on monetary policy. For Indian markets, the domestic bond management strategy and the India-US yield differential will be the key variables to monitor.
Point of View
Yet the US is still running expansionary spending. Betting on mid-term election outcomes to deliver fiscal prudence is a slim reed: US fiscal consolidation has historically been more rhetoric than reality. For India, the managed borrowing strategy deserves credit, but a sustained elevation of US yields narrows the RBI's room to manoeuvre on domestic rates — particularly if FPI outflows pick up pace.
NationPress
1 Nov 2026
Frequently Asked Questions
What does the SBI Ecowrap report say about US Treasury yields?
The SBI Ecowrap report, released on 1 November, projects that 10-year US Treasury yields are most likely to settle near 4.75 per cent, though a short-term spike to 5.25–5.35 per cent around the US mid-term elections cannot be ruled out. Yields are currently hovering near 4.9 per cent, elevated from historical levels.
Why are US Treasury yields staying elevated?
A growing mismatch between the supply of US government securities and investor absorption capacity is the primary driver. The SBI report estimates an excess supply of $304 billion, linked to a US fiscal deficit of 6.15 per cent of GDP — significantly higher than the $140 billion mismatch recorded in 2015 when the deficit was just 2.5 per cent of GDP.
How could the US mid-term elections affect Treasury yields?
If Democrats secure a favourable verdict, the SBI Ecowrap report argues that their historical tendency toward fiscal prudence could prompt steps to contain government borrowing, pushing yields toward 4.75 per cent. A failure to implement any corrective fiscal measures, however, could keep yields elevated or push them higher.
What is India's exposure to elevated US Treasury yields?
India faces a domestic excess bond supply of approximately ₹1.52 lakh crore, but the government has partly offset this through bond switches and buybacks, reducing gross borrowing by ₹1.23 lakh crore. The India-US 10-year yield spread stands at around 250 basis points, which could narrow if US yields fall or Indian yields rise under FPI outflow pressure.
What happens if the US takes no steps to reduce its fiscal deficit?
In its tail-risk scenario, the SBI Ecowrap report warns that the US could face a deeper fiscal crisis, with higher deficits and mounting debt pushing yields further up. This would amplify stress across global bond markets and increase borrowing costs for emerging economies.
