JPM's Dimon Sees 10-Year Treasury Yields at 5%

WASHINGTON, DC - JUNE 13: President and CEO of JPMorgan Chase Co. Jamie Dimon testifies before a Senate Banking Committee hearing on Capitol Hill June 13, 2012 in Washington, DC. The committee is hearing testimony from Mr. Dimon on how JP Morgan Chase lost over two billion dollars in stock market trades. (Photo by Mark Wilson/Getty Images)

At least one prominent market participant sees much higher U.S. Treasury yields on the horizon. J.P. Morgan Chase’s (JPM) chief executive officer Jamie Dimon warned over the weekend that investors should be prepared for the 10-year U.S. Treasury yield to rise to 5% or even higher. (See also: Jamie Dimon: Fed QE Strategy May Cause a Market Panic)

Dimon’s forecast, given at the Aspen Institute’s 25th Annual Summer Celebration Gala, follows his recent projection that the benchmark yield would reach 4% in 2018.

“I think rates should be 4% today,” Dimon said on Saturday, according to Bloomberg. “You better be prepared to deal with rates 5% or higher – it’s a higher probability than most people think.”

Yields Reach for 3%

Meanwhile, the yield on the benchmark 10-year Treasury note has climbed modestly above the much-hyped and psychologically significant 3% level multiple times this year. Each time was short-lived, however, as economic concerns have persisted despite strong recent data trends for U.S. economic growth, employment and inflation. The last time the 10-year yield emerged above 3% was only late last week, but the breakout was slight, and this week has seen another subsequent pullback in yields.

Source: TradingView. Daily chart of U.S. 10-Year Treasury Note yield since beginning of 2018.

Economic Optimism

Dimon’s latest prediction has been driven in large part by the bank chief’s continued optimism regarding the U.S. economy. With historically low unemployment at only 3.9%, a robust gross domestic product reading at an annualized 4.1%, inflation hovering at or very near the Federal Reserve’s 2% target, and ongoing increases in fiscal stimulus, Dimon has some strong support for his thesis that yields may have significantly further to run.

A few times earlier this year, investors’ fears of rising inflation and interest rates (as gauged by surging Treasury yields) have led the way to heightened market volatility and instability. But those concerns have since abated, as benchmark stock indexes have subsequently risen to approach record highs once again. Dimon also chimed-in about his view of the markets on Saturday. Due to strength in the U.S. economy, he sees the bull market extending for 2-3 additional years.

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