Market forecaster Jim Bianco warns bond yields could surge beyond 5%

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According to Wall Street forecaster Jim Bianco, Treasury yields are expected to climb higher and potentially exceed 5% in the next few weeks. Bianco believes that this move in the bond market is far from over, and he points out that if the Federal Reserve hints at ending interest rate hikes while investors still perceive inflation, they will not buy bonds. The recent surge in yields has resulted in the 5-year and 10-year Treasury notes, as well as the 30-year Treasury bond, reaching their highest levels since 2007. The volatility in the bond market has also affected stocks, with the Dow Jones Industrial Average experiencing its worst daily performance since March and turning negative for the year.

Bianco argues that bond investors and managers have been trying to argue for a recession and a rally throughout the year, but have faced significant losses. He believes the current bond market situation is a capitulation, indicating a point of surrender and giving in to market forces. Despite this, Bianco sees the current yields as just slightly above fair value, with his estimation of fair value at 4.5%. However, he warns that further Fed discussions about being done with rate hikes may worsen the situation.

The increasing yields in the bond market have caused concerns among investors, as demonstrated by CNBC on-air editor Rick Santelli, who warned of the potential for higher rates. Santelli suggested that Treasury rates could reach 13.5% to 14% within the next seven years, in a worst-case scenario. Bianco considers such a situation extreme, requiring much more severe circumstances than he anticipates. The ongoing uncertainty in the bond market has also had a negative impact on stocks, with major indices like the S&P 500 and the Nasdaq Composite closing more than 1% lower.

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