Wall Street forecaster Jim Bianco expects Treasury yields to rise sharply – potentially exceeding 5% in the next few weeks.
“I don’t think we’re at the end of this bond market movement,” the president of Bianco Research told CNBC’s “Fast Money” on Tuesday.
If the Federal Reserve hints at ending interest rate hikes while investors are still feeling the pinch of inflation, Bianco warns they won’t buy bonds.
“That, in my opinion, ruined the bond market,” he said. “The more the Fed talks about being ready, the more they wait [and] When you consider all the rate hikes they’ve done, it makes it even worse that they’re making it worse.”
Yields on 5- and 10-year Treasury bonds and 30-year Treasury bonds reached their highest levels since 2007. The 10-year Treasury yield reached 4.8% on Tuesday. Bianco sees 4.5% as a fair value.
“We are currently just a little above fair value. I think what you’re seeing in the bond market is a capitulation,” Bianco noted. “Most of the year we are bond investors [and] Bond managers have been around for a long time. They tried to argue why we are going to have a recession. Why there will be a rally. And their heads have been crushed, and they cannot bear it any more.”
Volatility in the bond market also extends to stocks. The Dow Jones Industrial Average posted its worst daily performance since March and is now negative for the year. The S&P 500 and Nasdaq Composite also ended the day more than 1% lower.
The latest jitters over rising yields come a day after CNBC broadcast editor Rick Santelli issued a warning to investors on Fast Money.
“We have a lot of potential for improvement,” said Santelli on Monday. “If someone asked me and put a gun to my head and said, ‘Listen, [in] Worst case: where will interest rates for government bonds go? ten years?’ I would say in the next seven years you should be able to see 13.5% to 14%.”
For Bianco, such high yields are an extreme situation. “13%? “For that to happen, something bad would have to happen – much worse than I expected,” he said.
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