Time to strap on your seat belt. The yield on the U.S. 10-year will shoot up to 3% by the end of this year, nearly twice this year’s lows from back in the winter, says Royal Bank of Canada’s U.S. chief economist.
“We do not expect that process will be linear, however,” cautioned Tom Porcelli, in a recent note to clients. That may be an understatement.
Over the past few days the yield on the benchmark 10-year bond has has staged one one of the biggest moves since the financial crisis in 2009. Since Tuesday it’s jumped nearly 40 basis points.
Said Mr. Porcelli: “Remember, while the Fed may no longer represent a significant impediment to higher yields, the fate of rates is multifaceted: European stress, EM growth concerns, and our own homegrown issues will all ultimately dictate the direction and speed with which we get to 3% – or, even if we get to 3%.”
Translation: The U.S. central bank along with its peers around the world is about to back away from quantitative easing programs that artificially pumped up liquidity and cushioned against market turmoil. Get ready for the full impact of the storm that is raging in global markets.
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