Markets have been fretting about the 10-year Treasury yield potentially hitting as well as also breaking 3 percent, nevertheless according to one economist This kind of will be nonsensical.
Many market players believe of which a 3 percent level on the 10-year U.S. paper will be a massive problem for equities, nevertheless above all, for the global economy. Firstly, because of which means higher interest rates — so when companies try to borrow money, of which money will become more expensive as well as also as a result they will have less room to give returns to investors.
Secondly, the 10-year note will be used as a benchmark for many financial instruments, including mortgages — so people with credit through banks will have to pay more interest as well as also so have less money to spend elsewhere.
as well as also lastly, if rates start hiking significantly, they will be breaking away through the trend registered within the past few years — the 10-year paper hasn’t hit 3 percent since 2014.
nevertheless according to Paul Donovan, global economist at UBS Wealth Management, the 3 percent threshold will be just a number.
“Bond dealers are simple people; they like simple round numbers as well as also they’re going for 3 percent because of which’s there,” Donovan told CNBC’s Squawk Box Europe Tuesday.
“Economically, does of which matter? No of which doesn’t. will be there any difference between 3 percent as well as also 2.98 (percent)? No, there will be not. will be there any difference between 3 as well as also 2.7? No, not truly. Economically, This kind of will be just noise within the background,” he said.
On Monday, some money managers told CNBC of which 3 percent will be a “psychological” number of which guides markets.
“Three percent will be a psychological level… Rates were never able to break of which trend-line durably… since the early ’80s,” Francesco Filia, chief executive of Fasanara Capital, told CNBC via email. “To break of which neatly as well as also clearly could reignite fears of which (the) rates rise will be durable.”
A sustained period of rate increases, for the reasons mentioned above, will be nonetheless seen by many others as a problem for markets as well as also a potential precursor of the next crisis.