Yields Weren't Supposed To Move Higher, Yet They Did
My view is that the 10YR Treasury yield will move directionally higher as the Fed and commercial banks continue to expand the money supply in conjunction with the Federal Government continuing to run Trillion-Dollar-plus deficits. Elevated yields are squeezing the economy.
90% of the Treasury yield “experts” were wrong about long rates when the Fed started to lower its Fed Funds rate earlier this year. Those experts failed to pay attention to growing fiscal deficits and the expanding money supply. The combination of those two elements can only lead to a devalued Dollar (i.e., “inflation”). Higher inflation typically means higher interest rates, unless the Fed decides to exercise yield curve control, which will only exacerbate the problem.
I am not confident that a 5% yield on the 10 Year will be the point at which something “breaks” in the economy as so many have repeated in the media. My view is the economy is breaking a little bit each day. We saw it in Tech company guidance during the September quarter calls, we see it in travel, we see it auto loans, we see it in credit card delinquencies. These problems will only get worse as the 10 Year yield moves higher. I expect the 10 Year to move higher so long as the U.S. runs fiscal deficits and runs loose monetary policy.
