The sell-off in Treasuries has weighed on stock market valuations and increased borrowing costs for companies and consumers alike
Investors should be prepared for long-duration Treasury yields to reach 7% if the U.S. economy skirts a widely anticipated recession, Ned Davis Research warned in a note on Tuesday.
Joseph Kalish, chief global macro strategist at Ned Davis Research, said the Treasury sell-off could continue if the neutral rate of interest – the rate at which monetary policy is neither contractionary nor expansionary – rises due to a prolonged expansion. Add a term premium for longer-dated debt, which pre-pandemic averaged 1.65% for the period since 1961, “and you get 7.20%,” he said.With the potential for a worsening Treasury market sell-off, Kalish is bullish on gold and remains slightly underweight bonds, and favours large-cap equities over small-caps, he noted.
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