(News Bulletin 247) – David Lebovitz, global strategist at JP Morgan Asset Management, is concerned about the speed at which bond yields are rising and fears that this could create an accident in the market.

This is the big sign of the current nervousness of the market: the meteoric rise in bond yields. In the space of a few weeks, rates have indeed climbed to levels not seen since 2007 in the United States.

The yield on the 10-year US Treasury bond rose from 3.96% at the end of July to now 4.700%. This rebound in yields also concerns Europe: the 10-year rate on the 10-year German bond flirted with 3% last week while it was below 2.5% just a month ago .

These increases are linked to the monetary policy expectations of the American Federal Reserve (Fed). Until recently, the market had priced in an additional rate increase from the US central bank. But the idea of ​​another increase is slowly beginning to emerge in the minds of investors, especially since the ISM manufacturing index published on Monday showed how resilient the American economy remained.

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A “financial accident”

And, in their latest interventions, the various members of the Fed clearly confirmed with a certain firmness that rates would remain at a high level for a long time.

Hence these records reached on bond rates. However, it is not so much the levels as the speed at which these yields rise that concerns David Lebovitz, global market strategist at JP Morgan Asset Management.

“If rates continue to rise as they are, there will be a financial crash. Something will break and the Fed will move in the other direction (towards lower rates),” he said. Monday evening on Bloomberg TV.

“But it seems that the stock market has the idea that the Fed is going to relax (its monetary policy, Editor’s note) for the sake of easing in 2024,” he continues.

The market expert says he is surprised that stocks “continue to ignore” the warning signals sent to the bond market, which he describes as “troubling”.

Jamie Dimon prepares for 7% rates

Which is all the more surprising given that in times of great uncertainty, as is currently the case, a “flight to quality”, that is to say a rush towards safe assets like bonds and the dollar, is supposed to trigger a buying flow on debt securities. And therefore pull yields down and not up.

The big boss of JPMorgan, the emblematic Jamie Dimon, one of the rare big bankers still in his position to have experienced the 2007-2008 crisis, had warned last week that he did not rule out seeing rates exceed the 7%.

“I ask business leaders if they are ready to face a rate of 7%. In the worst case, it is 7% and stagflation. If the volumes are lower and the higher rates, the system will be subject to tensions,” he told the Times of India.. “We strongly advise our customers to prepare for this type of stress,” he concluded.