The yield on 10 year Treasury bills could be on the verge of collapsing.
After stabilizing in recent weeks, Wells Fargo Securities’s Michael Schumacher predicts that the current risk backdrop will revive yields in the coming weeks.
He lists the Federal Reserve’s high level of convenience in terms of soaring inflation, the massive fiscal and monetary stimulus in the pipeline, and the strength of economic data.
“It’s a recipe for rising returns and maybe quite significant,” the company’s head of macro strategy told CNBC’s Trading Nation on Friday.
The 10 year return is 1.50% and it’s down nearly 5% in the last month. But it’s up 70% so far this year and 155% in the past 52 weeks. Schumacher assumes that the 10-year return at the end of the year will be between 2.10% and 2.40%.
“It sounds aggressive,” he said. “But when you think about the move in February and March, it’s really not that extreme move.”
Schumacher warns of the opposite of inflation.
“Inflation will rise quite sharply over the next few months,” he added. “If you think back to a year, the economies were at a standstill. In fact, inflation has come down quite sharply.”
“I will pose a difficult problem”
And that could become a wake-up call for investors and government officials as early as May. Schumacher notes that this is the final base effect month, a term used by economists to describe an abrupt increase or decrease in data.
“That will frankly be a difficult problem for the Fed and other policy makers,” said Schumacher. “You have to find out, hey, is this actually a real spike in inflation? Is it going to be sustained or will it be short-lived?”
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