Jamie Dimon just got a big-name backer in his bet that benchmark U.S. yields are heading toward 4 percent.
Franklin Templeton bond chief Michael Hasenstab predicts rising inflationary pressures, an onslaught of U.S. bond supply and the Federal Reserve’s moves to pare its balance sheet will conspire to drive up benchmark rates. Dimon, JPMorgan Chase & Co.’s chief executive officer, made a similar call earlier.
“That’s a perfect storm for putting upward pressure on Treasuries,” Hasenstab said in an interview with Bloomberg TV. “The U.S. economy can definitely deal with 4 percent or higher” 10-year Treasury yields.
The two investors are at the vanguard of a bearish camp in a growing debate over where Treasury yields are headed after they crossed 3 percent last month for the first time since 2014.
The bold calls from Hasenstab and Dimon go against the consensus. The median forecast of 60 analysts surveyed by Bloomberg sees the 10-year yield rising to 3.14 percent by year-end. Only one has it above 4 percent.
Pacific Investment Management Co.’s Dan Ivascyn has argued it’s premature to declare the end of three-decade bull market for bonds.
Hasenstab, known for big conviction trades, has been bracing for rising U.S. rates since at least 2016. He added to his short Treasury position this year, pushing average duration in his portfolio to the most negative ever at -0.85 years, according to public filings.
The negative duration generates profits when bonds fall and yields increase.
The 10-year Treasury yield hasn’t traded at 4 percent since April 2010. Within six months of touching that level, though, it fell back to 2.33 percent.
This article was provided by Bloomberg News.