BlackRock Inc.’s CEO Larry Fink expects 10-year Treasury yields to top 5% as shifts in geopolitics and supply chains make inflation more persistent.
(Bloomberg) — BlackRock Inc.’s CEO Larry Fink expects 10-year Treasury yields to top 5% as shifts in geopolitics and supply chains make inflation more persistent.
“My opinion is we’re going to have 10-year rates at least at 5% or higher because of this embedded inflation,” Fink said at the Berlin Global Dialogue forum on Friday. “We’re underestimating the change in geopolitics is so structurally inflationary.”
Fink is the latest Wall Street executive to warn this week of the risk of higher rates and bond yields. Jamie Dimon, CEO of JPMorgan Chase & Co., said US borrowing costs could surge as high as 7% in a worst-case scenario, while Pershing Square Capital’s Bill Ackman is eyeing 30-year Treasury yields at 5%.
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The comments come after the yield on 10-year Treasuries hit 4.68% on Thursday, the highest since 2007. The surge this year has been driven by aggressive Federal Reserve interest-rate hikes, with the latest move up caused by policymakers’ message that rates will stay higher for longer.
Added to that is a backdrop of increased US government borrowing to fund budget deficits, Fitch Ratings stripping the US of its top credit grade, and a surge in oil prices that has renewed fears about persistent inflation.
While BlackRock has previously warned of higher for longer rates, Fink said it’s unlikely the world will face a repeat of the “hyperinflation” of the 1970s when the US suffered double-digit price growth.
“I was a young bond trader during the late 70s where we had hyperinflation. I don’t think we’re going to have anything close to this inflation of the 70s,” he said. “But I would clearly say we are in a period of time with so many transitions, whether it’s a transition from deflation to inflation or a geopolitical transition. The fragmentation of supply chains is just beginning.”
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Fink said the US economy remains vibrant, and a recession, if it happens, might not take place until 2025. That’s partly because many homeowners will be protected from the spike in borrowing costs since house purchases in the US are based on 30-year mortgages.
“The transmission of high and elevated interest rates in the US takes much longer to impact the economy,” he said. “And whatever the recessions we’re going to have, they’re going to be quite modest. So, I’m not even that fearful.”
Instead, he sees labor shortages as among the major risks to the US economy as that could force the Fed to maintain tight monetary policy for longer. Demand for workers is likely to increase partly as a result of investments and jobs created by government initiatives.
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“You may need a recession to bring down labor demand,” he said. “I think this is one of the things that’s going to impact the United States.”
On politics, Fink said politicians should provide more hope to voters to help bolster confidence. The US is set for a presidential election next year, with 80-year—old incumbent Joe Biden likely to face off once again against 77-year-old Donald Trump, the frontrunner for the Republicans. Asked whether he’d run for president, 70-year-old Fink joked: “I’m too young.”
(Updates with Fink’s comments on US recession from 8th paragraph.)
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