Topline
The impact of historically high bond yields will be felt across asset classes, according to asset managing giant Blackstone’s second-in-command, a potentially dire warning on the consequences of the Federal Reserve’s ongoing campaign to stabilize inflation by dramatically raising interest rates.
Jonathan Gray, right, thinks the rise in bond yields will begin bleeding into consumer behavior.
Key Facts
Yields for 10-year U.S. Treasury notes, the most commonly cited measure of the strength of the bond market, rose to 4.99% Thursday, threatening to cross the 5% threshold for the first time since 2007.
Higher yields signal weakening confidence in the market for already issued bonds and indicate where the market expects monetary policy to head, with the recent surge indicating investors largely expect the Fed’s “higher for longer” mantra when it comes to interest rates to hold true.
“There is definitely an impact to all assets when you have this kind of movement in the 10-year Treasury,” Blackstone president and chief operating officer Jonathan Gray told the Financial Times in an interview published Thursday.
In addition to a depreciation in existing bonds and concerns about what more attractive Treasury returns may mean for stocks, higher yields also strongly influence borrowing costs ranging from mortgages to student loans, and 30-year mortgage rates now sit at a 23-year high of 7.63%, according to government data released Thursday.
These elevated borrowing costs “will impact consumer behavior,” Gray, worth $6 billion, told the newspaper, predicting the Fed will “invariably…cause the economy to slow down” if it keeps policy this restrictive.
Key Background
Since mid-July, 10-year yields have spiked by more than 125 basis points, coinciding with a significant slump for stocks, with the Dow Jones Industrial Average down more than 5% during the stretch. Yields sat at about 1.5% just before the Fed began hiking rates last year from close to zero to above 5%, roiling equity markets. After a steep decline last year, stocks have proven resilient in 2023 even as the bond market deteriorated, with the S&P 500 up 12% despite a fall tumble.
Crucial Quote
It’s “literally how monetary policy works” that tighter policies would cause bond yields to rise and financial conditions to worsen, higher Fed chairman Jerome Powell said at a Thursday panel in New York.
Tangent
Gray’s comments came after his firm reported quarterly results well below analyst estimates on the top and bottom lines, sending Blackstone shares down 7% to a three-month. Blackstone is the largest holder of commercial real estate in the U.S., an industry badly battered by the shift in interest rates.
Further Reading
Source: https://www.forbes.com/sites/dereksaul/2023/10/19/bond-yields-poised-to-break-great-recession-threshold—blackstone-chief-warns-of-impacts/