10-Year US Treasury Yields
The days of safe, high-yield investments may have ended a generation ago.
Jamie Dimon is still warning about inflation, but the bond market has moved. The breakeven rate is below 2%, which means the Fed is more likely to miss its target, and nominal interest rates are continuing to fall, despite the growing deficit.
US 10-year Treasury yields fell another 3 basis points today to 3.62%.
I’ll refer back to what I wrote in early June with the 10s at 4.35%:
I think this is a rare moment to lock in high interest rates for a long time in the same way that the pandemic was a rare opportunity to lock in low interest rates on borrowing.
That opportunity is now largely gone.
Growth will be the main driver of the bond market going forward. There are some big warning signs about global growth, especially in China, but the US still looks strong. It may import some of that weakness or feel the lagged effects of monetary policy. The political situation over the next 50 days is a big challenge, but I think people will get back to work once the clouds clear in early November.
But the trend is now in AI, and OpenAI’s latest model is impressive. This will keep downward pressure on prices and boost productivity, which could cause massive disruption to businesses and the labor market. Ultimately, I think this could push overnight interest rates back below 1%, but the timeline is uncertain.
Right now, there are still some high returns but it requires going down the risk curve somewhat.