The Blubber

A looming crisis in the US bond market, capable of triggering a cascade of consequences, is being highlighted by an expert. Peter Schiff, the CEO and chief economist at Euro Pacific Asset Management, has sounded an alarm about the potential meltdown of Treasuries. This comes in the wake of 10-year benchmark yields crossing the significant 4% threshold, leading to a sell-off in US equities. It's important to note that bond yields and prices exhibit an inverse relationship.

Schiff predicts that a turmoil in the debt market could result in a corresponding surge in home loan rates, in line with the movement of Treasury yields. He anticipates that the benchmark 30-year mortgage rates could soon hit 8%, a level not witnessed since 2000.

In a tweet, Schiff warned, "The bond market is on the verge of a major breakdown. Not only will this raise the cost of financing the $32.7 trillion National Debt, but it'll crush the loan portfolios of already insolvent banks."

The yield on 10-year Treasuries experienced a significant surge of up to 15 basis points on a particular Thursday, reaching a peak of 4.02%. This rapid movement was triggered by official data revealing a stronger-than-expected growth in US GDP during the second quarter. The robustness of the economy has led to growing expectations that the Federal Reserve might continue its trend of raising interest rates, aimed at taming inflation and maintaining its 2% target.

The Federal Reserve recently increased its benchmark rate by 25 basis points, reaching a level not seen in 22 years. This brings the cumulative rate hikes since the spring of 2022 to an impressive 525 basis points.

Schiff draws attention to the recent sell-off in the bond market and the rebound in global oil prices, indicating potential risks of a resurgence in inflation. This, in turn, could exert further pressure on the central bank to adopt more stringent monetary policies. As evidence, he points out that WTI oil futures have rallied by 25% from their lows in early May.