[jyl]

I personally think that yields (rate) should be higher. Very low yields inflate asset prices, encourage speculation, and penalize savers. 4.2% on the 10 year is not too high. 6% feels more desirable. Sure, that implies mortgage rates 9-10% which won’t be good for house prices, but house prices have soared in the past decade, some giveback won’t kill us. Ditto other asset prices.

Where will yields go? One way to look at it is relative to GDP growth. US GDP is growing around 6% nominal (4% inflation plus 2% real GDP growth; note the GDP growth figure discussed in media, reports, etc is real). That’s higher than China’s nominal GDP growth, by the way. If the economy grows 6%, a ten year yield 200 bps below that seems too low. Tie up money for ten years for a return lower than GDP growth - not so attractive.

Another way to look at it is demand-supply, but that is incredibly hard to figure out, no-one reliably can. So many buyers for Treasuries, with so many different reasons and motivations. The supply side is growing fast, that’s true, but buyers have shown up in force for the upsized Treasury auctions so far.

Bonds have been a winning bet for many decades, as yields have declined. That one-way street is over. Investors have lost money on Treasuries for the last two years and look to be losers for a third. Going into 2023, there were a lot of calls to buy Treasuries notes and bonds as there hasn’t been a three-year losing streak for - well, ever maybe. I didn’t see the point, not when bills are yielding 5%+ with no duration risk. Still don’t.