Following the Federal Reserve's expected 25-basis-point rate hike, which brought with it a projection for one more increase this year, a key strategist at BNP Paribas suggests the central bank's move may not be sufficient to stabilize long-end yields.

Guneet Dhingra, Head of US Rates Strategy at the French bank, stated that while the Fed raised rates and delivered a hawkish stance on Wednesday, the action is "not enough to stabilize the long-end." He forecasts that the 30-year Treasury yield will climb to its highest level since 2002.

In a research report co-authored with James Egelhof, the bank's Chief US Economist, Dhingra wrote, "We believe the Fed's action is a strong response to market concerns about its credibility, and it can now no longer be considered a reason to be bullish on long-end yields." He added, "However, from other fundamental and technical perspectives, the asymmetric risk of higher yields persists for three reasons."

First, they note that the market is unlikely to view the Fed's policy as restrictive, but rather as a mere exit from accommodation and a return to "neutral." This implies that if short-end yields continue to climb, long-end yields may rise in tandem as the market adjusts its expectations for the neutral rate higher.

Second, with the rate hike now delivered, the market's focus is expected to sharpen on the interest payment burden, particularly given the heavy reliance on short-term bills for financing, as well as the overall fiscal deficit. This is seen as a factor that would push up long-end term premiums.

Third, the factors Chairman Warsh highlighted, including robust economic growth, debt issuance from large tech companies, and geopolitical influences, are anticipated to persist and continue to exert upward pressure on long-term yields.

In light of this outlook, BNP Paribas is advising its clients to directly short 30-year US Treasuries, suggesting an entry point at a yield of 5.36%, a target of 5.60%, and a stop-loss at 5.20%.