Could US 10-year yield get back to 5%?
Main U.S. indexes green: Nasdaq leads, up ~0.8%
Energy leads S&P 500 sector gainers; Utilities weakest group
Euro STOXX 600 index off ~1%
Dollar, crude dip; gold up; bitcoin surges ~5% (~10% since Fri)
U.S. 10-Year Treasury yield rises to ~4.21%
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COULD US 10-YEAR YIELD GET BACK TO 5%?
Jim Smiegel, chief investment officer, at the $1.5-trillion asset manager SEI, believes the U.S. benchmark 10-year yield could get back toward 5%, noting that inflation could re-accelerate later this year. The 10-year yield is currently at 4.21% US10YT=RR.
"Inflation isn't done yet, and we're not going to just have this nice little...move back down and forget it," Smiegel says in an interview with Reuters.
He cites a rise in the Shanghai Containerized Freight Index (SCFI) which can be attributed to everybody diverting away from the Red Sea. Houthi militants in Yemen have launched drone and missile attacks on shipping in the Red Sea, Bab al-Mandab Strait and Gulf of Aden since November. These militants said they are acting in solidarity with Palestinians over the war in Gaza.
The SCFI, which reflects the spot rates of the Shanghai export container transport market, is up 109% year-over-year in July, according to global financial market tracker MacroVar.
"So we've been benefiting from really falling goods inflation for a while and it's been services that has kind of been hanging in there. Now we're gonna start seeing...goods inflation...turn back around," Smiegel says.
The latest U.S. consumer price index for June though showed a pullback, with the year-over-year increase slowing to 3.0% from 3.3% in May.
Aside from expectations of higher U.S. goods inflation, Smiegel points to the supply and demand dynamics on Treasuries that could push the 10-year yield higher.
"The Treasury has to float just a whole lot of debt to finance the U.S. deficit. But is there enough demand there to actually take up that debt?" He believes that the U.S. economy is well on its way to a debt-to-GDP ratio of 122%.
It's tough to be on the long-end of the curve, he adds.
"We're kind of in this unusual camp where even if we do get a cut from the Fed, we could still see 10-year rates actually kind of drift higher in that regard."
So far in 2024, the 10-year yield is up 32.7 basis points (bps), on track for its largest yearly gain since 2022, when yields surged 233 bps.
(Gertrude Chavez-Dreyfuss)
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