Published Wed, 11 Jan 2017 14:41:17 -0500 on Seeking Alpha
Bill Gross, the bond investor, is setting the tipping point at 2.60 percent. That is, Mr. Gross says, that if the yield on the 10-year Treasury note goes above 2.60 percent, it will "break a trend line that has been in place since the late 1980s…."
A "bear-market" for bonds would then follow. The question becomes, what might take the yield on the 10-year Treasury above this level. There are two ways to look at this right now.
First, looking at Treasury "break-even" yields, we are now interpreting that the market expects, over the next ten years, that the inflation rate of the United States economy will come in around 2.00 percent.
This rate of inflation is consistent with the policy objective of the Federal Reserve System to keep inflation at or around 2.0 percent.
The officials of the Fed are, themselves, forecasting that the inflation rate will not get above 2.0 percent in either the short-run or in the "longer run."
This, market estimated, estimation of inflationary expectations has remained around 2.0 percent ever since early November 2016 when Donald Trump was elected to be the president of the US.
If we keep inflationary expectations at this level going forward, this would mean that the estimated yield on the Treasury's 10-year inflation protected securities (TIPS) would have to be 60 basis points or more.
As the yield on the 10-year Treasury note rose following the Trump victory from about 1.80... Read more