Jamie Dimon Warns of 5% Treasury Yields

(Bloomberg) -- Not content with a previous warning investors should brace for U.S. yields of 4 percent, Jamie Dimon went one further at the weekend, suggesting 5 percent was a distinct possibility.

The JPMorgan Chase & Co. chief executive officer said Saturday people should be prepared to deal with the benchmark 10-year bond yield at 5 percent or higher.

“I think rates should be 4 percent today,” Dimon said Saturday at the Aspen Institute’s 25th Annual Summer Celebration Gala. “You better be prepared to deal with rates 5 percent or higher - it’s a higher probability than most people think.”

The 3 percent level is still providing stiff resistance for the 10-year Treasury yield this year. It briefly rose through the mark last week before falling back for the fourth time this year. That’s despite a U.S. jobless rate below 4 percent, economic growth above 4 percent, and a rare surge in late-cycle government borrowing.

Unease about the length of the economic cycle may be behind the stalled rise in yields. “The market is starting to look beyond the 2020 time-frame and pricing in some recession risk,” said Tom Garretson, U.S. fixed-income portfolio strategist at RBC Wealth Management.

Inflation Gauge

In addition, concerns about rising prices appear to be ebbing. In the U.S., the 5-year
break-even rate, a gauge of inflation expectations, has fallen to just under 2 percent, down from this year’s high of almost 2.2 percent.

Still, Dimon remained positive on the outlook for financial markets.

The current bull market could “actually go for 2 or 3 more years” because the economy is still doing quite well and markets usually turn right before the economy, he said.

Cyber attacks are “probably the biggest risk” to the U.S. today, though banks are quite well protected, Dimon said.

“We’re very, very protected,” he said.

The JPMorgan CEO reiterated comments made last year on Bitcoin, calling cryptocurrencies a “scam” and saying he had “no interest” in the world’s largest digital currency. He suggested governments may move to shut down the currencies, because of an inability to control them.

Dimon had urged investors to prepare for higher rates in an interview in May, given the possibility growth and inflation could prove fast enough to prompt the Federal Reserve to hike more than anticipated, and the increase in financing by the U.S. Treasury.

--With assistance from Emily Barrett and Wes Goodman.

To contact the reporters on this story: Cormac Mullen in Tokyo at cmullen9@bloomberg.net;Joanna Ossinger in Aspen at jossinger@bloomberg.net

To contact the editors responsible for this story: Christopher Anstey at canstey@bloomberg.net, Andreea Papuc, Tan Hwee Ann

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