The Bond Market’s Latest Conundrum
There’s now an overwhelming consensus that the Federal Reserve and many other central banks are done hiking; and yet global government bond yields are suddenly surging to the highest levels in decades.
Predictions that the 10-year will have to advance further, from figures as well-known as Pimco founder Bill Gross, who thinks they should be 4.5%, and former Treasury Secretary Larry Summers, who estimates they should be 4.75%.
These are not outlandish, and merely imply a return to norms that held for many years before the 2008 crisis.
“The push to higher real yields looks in play globally. It’s likely that a structural shift away from the GFC-era levels is under way, and a spread of 2% or greater above inflation expectations makes sense for the 10-year Treasury yield,”
If yields keep A rise in real yields can portend a crisis, but it can also show a belief in a resilient economy in which minimal post-GFC interest rates will no longer be appropriate.
Investors Are Positioned for Lower Yields, Not Higher
If yields keep heading upward, it could create as much pain for investors as the big fall in 2007 and 2008.
John Authers Bloomberg 18 August 2023
Conundrum
https://www.internetional.se/conundrum.html
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