Investing.com -- Given recent U.S. macroeconomic data, a hawkish Federal Reserve and the rise in bond yields, Bank of America analysts reassessed their outlook for U.S. Treasury rates, particularly the 10-year Treasury yield (UST).

In a note to clients Thursday, BofA questioned how far the 10Y UST can go.

The bank provided two frameworks to analyze potential outcomes for the 10Y UST: one based on Fed policy and asset swap spreads and the other from a macro perspective.

They explained that the frameworks indicate that the 10Y UST could rise as high as 5.25%, but achieving this would require expectations for U.S. economic acceleration, further Fed hikes, and limited negative impacts on risk assets.

According to BofA, “It is possible but is a high bar, in our view.”

For a more precise estimate, BofA looked at the 10Y swap rate and how it tracks the expected path of overnight rates. The current swap rate is below the overnight rate, reflecting market expectations of mild rate cuts.

However, BofA said that if the market prices in a flat path with no cuts or hikes, this could push the 10Y UST to 4.83%.

BofA also considers a scenario where the market prices in a 100 basis point hike, which could push 10Y UST up to 5.28%, with a potential tail risk of 5.9% in a worst-case scenario.

Despite these possibilities, BofA warns that hikes are hard to price due to the Fed’s current restrictive stance and relatively low inflation.

If inflation remains sticky, they view a 5% yield on the 10Y UST as an attractive buy, reinforcing the idea that rates could see upward pressure in 2025 but with some constraints.