Dimon: Get ready for 4% yields and an uptick in market volatility

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  • JPMorgan CEO says investors should prepare for the possibility of 4% yields and increased market volatility.
  • US borrowing could jump to $US400 billion per quarter which is “a lot,” he warned. But he added that: “At the moment the economy is strong” and “America looks pretty good.”
  • Dimon made his comments in the context of the approaching end to quantitative easing, which is considered a relative unknown. “We’ve never had QE, we’ve never had reversal,” he said.

JPMorgan CEO Jamie Dimon thinks US growth and inflation could push the US Fed to raise interest rates above current forecasted levels and warned that benchmark yields could to increase to 4%

He told Bloomberg TV in Beijing that if the Federal Reserve decided to boost short-term interest rates “it might force the 10-year up,” referring to 10 year US treasury bonds.

“You can easily deal with 4% bonds and I think people should be prepared for that,” he said.

US Treasury bonds are units of government debt bought by investors for a set number of years in return for interest rates which are paid to the bond holder. The yield of the bond is the amount of interest it generates for its owner in proportion to its original cost of purchase.

The move would amount to “normalization,” as long as interest rates continue to climb and the US economy remains strong, Dimon said.

But Dimon warned that US borrowing could shoot up to $US400 billion per quarter, which is “a lot,” he said, adding that the extra borrowing combined with reductions in bond purchases from central banks around the world “may cause more volatility, higher rates in a way we don’t fully understand.”

Dimon also talked about a potential end to quantitative easing. The policy has been active since the 2008 financial crisis and sees central banks inject large sums of money into their financial systems to stimulate the economy.

“We’ve never had QE, we’ve never had reversal,” Dimon cautioned.

The JPMorgan CEO also spoke about the dangers of cyber threats to the banking system and the increasing strength of the Chinese Yuan vs the dollar during his interview.

Despite his comments on volatility and increased borrowing, Dimon said the outlook for the US economy is good at the moment. “At the moment the economy is strong,” he said. “America looks pretty good.”

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