CBO above market?
The Congressional Budget Office (CBO) July 2023 update provides the latest forecast for the 10-year Treasury yield, which is either higher or lower than the February forecast. Both were higher than the corresponding consensus view among economists.
figure 1: Ten-Year Treasury Yield (black bold), CBO forecasts for July 2023 (tan), February 2023 (green), May 2022 (blue), May 2023 Survey of Professional Forecasters The average forecast (red) and the July 2023 Wall Street Journal quarter-end survey (sky blue+), all expressed as a percentage. Recession peak-to-trough dates as defined by NBER are grayed out. Sources: Treasury, from FRED, CBO, Philadelphia Fed, WSJ, NBER.
The Congressional Budget Office’s May 2022 projection is for that number to increase rapidly as Russia expands its invasion of Ukraine. The February forecast was steady, while more recent forecasts point to a peak at higher levels followed by a decline. The private consensus in May and July was that the 10-year Treasury yield was more than half a percentage point lower than the CBO’s forecast.
Between 1983 and 2018, the average error in CBO (blue chip) forecasts for 10-year Treasury yields was 0.9 percentage points (1.0 percentage points), while the RMSE was 1.2 percentage points (1.2 percentage points) (see Congressional Budget Office (2023)). So, based on the historical record, it’s not clear that there’s a reason to think one of them is more accurate than the other.
