Bond Market Could Trigger $110B Selloff If 20-Year Yield Hits 6%
A strategist warns that 20-year Treasury yields hitting 6% could trigger a $110 billion bond selloff, affecting stocks and Bitcoin.
Three Fed officials stress inflation fight continues; Williams sees no 2027 hike, while Barkin and Collins back further rate increase.
October's meeting has been largely discounted, so the three officials speaking on Tuesday shift attention to December as the likely next move. Williams' remarks about 2027 limit how far markets can raise their expectations for the peak rate. This should cap gains for longer-term Treasury yields and the dollar unless the data shifts. Barkin's caution that price shocks persist offers ammunition for hawks if inflation remains sticky. Crude oil is the swing factor. Williams' relatively optimistic forecast relies on energy prices not boosting inflation next year; a fresh oil rally, such as one driven by intensified Houthi strikes on Saudi oil facilities, would contradict that scenario and bolster the argument for additional rate increases. At present, oil serves as a direct factor in how the Fed's policy path is priced.
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Three Federal Reserve officials concur that the battle against inflation is unfinished; the key uncertainty is whether current shocks will dissipate on their own or force continued tightening into 2027.
On Tuesday, three Fed policymakers indicated that the inflation battle is still ongoing; two supported another rate hike in the near term, while John Williams hinted that the cycle might conclude with that move.
Speaking at Howard University, Richmond Fed President Tom Barkin stated that the Fed's 2% inflation target is attainable. He added that inflation is clearly persistent and that price shocks keep occurring, making action by the Fed logical. Barkin, a non-voter this year, also noted that policymakers observe the impact of AI investment on US inflation.
Williams, vice chair of the Fed's rate-setting committee, told Bloomberg News that his view remains unchanged: one more rate increase might be warranted in 2026. He currently sees no need for the Fed to act further in 2027, but acknowledged the outlook could shift and that policymakers must monitor data. Williams predicts inflation will drop significantly next year, reaching near 2% for all of 2027 as tariff impacts fully dissipate and energy prices cease to add to inflation. He conceded that high energy costs stemming from the Middle East conflict and tech-related investment are boosting near-term pressures, but maintained the economy is not overheating.
Boston Fed President Susan Collins adopted a more hawkish stance. In prepared remarks, she stated that she expects the Fed to raise rates a bit further before year-end and characterized high inflation as a significant risk and the Fed's primary concern. She predicts both headline and core inflation will remain above target in coming months due to higher prices for diesel, jet fuel and heating oil. In follow-up comments, Collins said economic uncertainty is high and that she is monitoring how broad-based inflation pressures are.
Collectively, these remarks indicate a Fed united on the immediate course but divided on the character of the challenge. Williams views inflation as driven by temporary shocks that should dissipate, whereas Barkin's insistence on ongoing shocks and Collins' attention to the breadth of price increases suggest a danger that inflation turns out to be more entrenched.
The Fed increased its benchmark rate by 25 basis points to 3.75%-4.00% in September. Williams' remarks late that month caused markets to mostly rule out a rate rise at the October 27-28 meeting, making December the stronger candidate for the next move.
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A strategist warns that 20-year Treasury yields hitting 6% could trigger a $110 billion bond selloff, affecting stocks and Bitcoin.
Dollar weakened ahead of U.S. CPI, Treasury yields eased, stocks slipped and oil rose on Middle East worries.
Boston Fed President Susan Collins said uncertainty is high and she is watching how broad inflation pressures are before the next rate decision.
China is due to publish September CPI and PPI on Wednesday; August consumer prices rose 0.8% on the year and producer prices climbed 3.8%.