There are theoretical and practical reasons to believe rates should continue to go higher. JPMorgan (JPM) CEO Jamie Dimon recently
highlighted the risk of 6% rates in his annual letter to shareholders. 2024 inflation reports have come in hotter than expected, echoing historical patterns where inflation is hard to stamp out. Theoretically, there are reasons to expect yields to rise as well.
The CBO expects the U.S. budget deficit to be 5.6% of GDP for 2024. This is probably inflated because student loan forgiveness is baked into these and it's doomed in court, but the budget deficits are honestly quite reckless. Sustainable budget deficits are thought to be in the 3%-4% range, which would require immediate tax hikes of about 1.5% to 2% of GDP. What happens when the government wants to spend money without raising taxes to pay for it? They have to borrow the money to do so. This puts upward pressure on yields.
Mainstream economic theory says that
excessive government borrowing will "crowd out" the private sector. To put this in practical terms, the Biden administration needs to borrow many trillions of dollars to finance increased military spending, the green energy transition, and the social programs they want. But doing so without paying for it with tax increases drives up yields, "crowding out" potential homebuyers looking for mortgages, small businesses looking for loans, etc.
Mainstream economic theory says that excessive government borrowing will "crowd out" the private sector. To put this in practical terms, the Biden administration needs to borrow many trillions of dollars to finance increased military spending, the green energy transition, and the social programs they want. But doing so without paying for it with tax increases drives up yields, "crowding out" potential homebuyers looking for mortgages, small businesses looking for loans, etc. If people want to support reckless government spending, the leftist globalist/elitist program for America and so on, it makes sense they would buy government debt. But for the rest of us, buying government debt makes no sense as we are just kicking ourselves in the face by doing so, arming and equipping the enemy. Stick to corporate debt (or the debt of saner nations) and let the government figure out how to finance its deficit when most of the public treats it as radioactive.
Don't tell me US debt is the safest investment out there either. Not only do the ratings agencies' downgrades tell a different story, if most of the public stops buying and financing Washington's debt it will hardly be risk-free to hold it.