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.”

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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