Gary Shilling is talking about bonds again.
This time in an interview with Bloomberg’s Andrea Wong, Shilling — who was Merrill Lynch’s first economist in the 1980s — is repeating his forecast that the benchmark 10-year yield will fall to 1%.
The record low on the 10-year yield was 1.38% in July 2012.
Shilling holds a “this time is different” argument for maintaining this call.
Essentially, unlike what he says usually occurs in “regular cycles,” we’re seeing the combination of negative interest rates around the world, China’s economic challenges, and low global demand.
And this will send investors rushing into the safety of US government debt, pushing up bond prices and lowering yields.
Bloomberg notes that most forecasters started the year expecting yields to move higher as the Federal Reserve raised interest rates.
On Thursday, we saw a bit of the panic buying Shilling is forecasting as risk assets — notably stocks — sold off and Treasurys rallied, pushing the 10-year yield down to a one-year low below 1.6%. Other safe-haven assets including gold and the Japanese yen also saw strong buying.
And so Shilling is saying that this ‘risk-off’ behaviour will persist until the benchmark yield falls to an unprecedented 1% level.
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