Dimon's 4% Yield, Needs Inflation to Hit 3% : UBS Asset

(Bloomberg) -- Jamie Dimon’s warning that investors should be prepared for benchmark U.S. yields to climb to 4 percent has drawn some skepticism.

There’s just not enough inflationary pressures in the world’s largest economy to force the Federal Reserve’s hand on interest rates and send 10-year note yields to 4 percent, in the view of Anne Anderson at UBS Asset Management. Dimon, the JPMorgan Chase & Co. chief executive officer, said Tuesday that "people should be prepared" for 4 percent, and that higher rates would amount to normalization if they climbed alongside a strong economy.

“I find it hard to make it work," said Anderson, who chairs a global fixed-income rates and foreign-exchange panel at the UBS unit. "It would mean inflation has moved suddenly from 2 to 3 percent -- there are not enough rigidities in the U.S. economy for that to happen so quickly.”

Dimon's 4% Yield, Needs Inflation to Hit 3% : UBS Asset

Headline consumer prices, due out this week in the U.S., are forecast to rise 2.5 percent in April from a year before, and aren’t seen hitting 3 percent for any quarter through October 2019 in Bloomberg surveys of economists.

Dimon isn’t alone, though -- Franklin Templeton bond chief Michael Hasenstab says that with U.S. growth at 3 percent and inflation at 2 percent, 10-year Treasuries normally ought to be yielding 4.5 to 5 percent. "Certainly above 4 percent" the economy can handle, he said.

“An uber bear scenario is 4 percent by the end of 2018,” said Anderson, head of fixed income, Australia, at UBS Asset Management in Sydney.

Ten-year Treasury yields were trading at 2.99 percent after topping 3 percent on Wednesday.

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