KKR & Co. told clients it nudged its 10-year Treasury target to 5.1% for the end of this year, up from 5.0%. It also raised its forecast for late 2027 to 4.9% from 4.7%. The shifts reflect a view that borrowing costs at the far end of the curve need to stay elevated.
The update originates from the group overseen by Henry H. McVey, who runs global macro and asset allocation at KKR, and it cites Chairman Kevin Warsh's unease with stubborn inflation. "We continue to believe that investors at the long end of the curve will demand a healthy level of term premium in an environment of elevated nominal growth, large fiscal deficits, and ongoing competition for capital," the group wrote.
KKR now anticipates a rate increase in December followed by another in March, and then holding policy at that level into early 2029, compared with its prior assumption of 2028. Traders added to wagers on additional Fed tightening after Wednesday's hike, with pricing implying three more quarter-point moves over the coming year. Warsh avoided committing to any specific next step, but he reiterated dissatisfaction with the inflation path and emphasized the Fed's focus on price stability.
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KKR's team added, "In our view, moderately restrictive rates alongside lingering inflation and resilient nominal growth argue for a higher for longer policy setting." They also said the Fed does not expect inflation to return to its 2% target until 2029.
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