FedWatch's Ben Emons Sees 10-Year Treasury Yield Hitting 6% By January 2027 — Warns It Could Put Housing ‘In A Crunch’ And Slow The Economy

During an interview with CNBC, Emons said the economy is currently accelerating, helping explain why markets have been able to absorb higher interest rates so far.

• Emons said a 6% 10-year Treasury yield would likely push real interest rates above 3.5% and potentially above 4%, creating a much more restrictive financial environment.
• He said such a move could not only slow the economy but also bring significantly more volatility to financial markets, particularly compared with the currently subdued level of the CBOE Volatility Index.
• Emons added that a 6% 10-year yield would put the housing market “really in a crunch,” while higher borrowing costs for corporations and municipalities could also slow economic activity.

FedWatch founder and chief investment officer Ben Emons sees the 10-year Treasury yield climbing to 6% by January 2027, which he believes could be a potentially significant turning point for the U.S. economy and the housing market.

During an interview with CNBC, Emons said the economy is currently accelerating, helping explain why markets have been able to absorb higher interest rates so far.

However, he cautioned that if the 10-Year bond yield hits 6%, the real interest rates could soar to over 3.5% to 4%. “At that level, I would think that rates are that restrictive, the economy starts to slow down much more than we're seeing currently,” Emons added.

6% Treasury Yield Could Change The Equation, Says Emons

Emons said a 6% 10-year Treasury yield would likely push real interest rates above 3.5% and potentially above 4%, creating a much more restrictive financial environment.

He said such a move could not only slow the economy but also bring significantly more volatility to financial markets, particularly compared with the currently subdued level of the CBOE Volatility Index.

Emons said the 6% target is initially based on market mathematics, noting that the 10-Year yield discounted forward is already around 6% or higher.

He added that a break above the roughly 5.3% area would make 6% a “very probable scenario.”

At the time of writing, the 10-Year Treasury yield edged up by 0.3 basis points to hover at 5.165%, while the 30-Year bond yield rose nearly three basis points to hover at 5.49%.

The iShares 20+ Year Treasury Bond ETF (TLT) rose 0.08% in Friday’s after-hours session, while the iShares 7-10 Year Treasury Bond ETF (IEF) edged up by 0.02%.

Housing, Borrowing Costs Could Feel The Squeeze

A sustained move toward 6% could have consequences beyond financial markets, particularly for interest-rate-sensitive parts of the economy, Emons said.

He added that a 6% 10-year yield would put the housing market “really in a crunch,” while higher borrowing costs for corporations and municipalities could also slow economic activity.

The housing market accounts for roughly 10% of the economy, he noted, making it an important channel through which higher rates could eventually feed into the broader economy.

At the same time, Emons highlighted that the economy has so far continued to expand alongside higher rates. A 5% yield, which he had previously flagged as potentially problematic, did not produce the slowdown some might have expected as GDP and investment continued to grow.

Fed, Inflation And The AI Growth Question

For the 10-year yield to reach 6%, Emons said the Federal Reserve would likely need to move beyond its current rate outlook, particularly if inflation becomes a more persistent problem.

“We get to 6% or higher if the Fed starts to change course because the inflation rate becomes more and more of a problematic issue for them. You'll see how that will really play out,” he added.

Making this more complicated than before is the surge in investments due to AI. Emons argued that increased regulation of the technology could encourage greater institutional investment by making the technology appear less risky and more established.

He said continued AI investment could therefore keep driving economic growth even as rates rise, creating a backdrop in which the economy remains strong enough to support higher long-term yields.

During the after-hours session on Friday, the SPDR S&P 500 ETF (SPY), which tracks the S&P 500 index, rose 0.09%; the Invesco QQQ Trust ETF (QQQ) gained 0.12%; and the SPDR Dow Jones Industrial Average ETF Trust (DIA) rose 0.04%. Retail sentiment on Stocktwits toward the S&P 500 ETF was in the ‘extremely bullish’ territory at the time of writing.

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