From Bloomberg via Canada's Financial Post, October 5:
'Investors are essentially demanding a higher return after inflation, not simply more protection against it'
The Treasury selloff that sent yields to multi-decade highs reflects stronger United States growth and competition for capital rather than rising inflation concerns, according to Citadel Securities.
Almost all of September’s increase in 10-year yields came from real yields, while inflation expectations remained relatively stable, Nohshad Shah, Citadel’s head of EMEA fixed-income sales, wrote in a Monday client note. Higher real — or inflation-adjusted — yields reflect an economy supported by fiscal easing, loose financial conditions and heavy investment in artificial intelligence.
The market is “repricing the strength and persistence of growth… and the real rates required to accommodate it,” he wrote. “Investors are essentially demanding a higher return after inflation, not simply more protection against it.”
Stronger prospective returns encourage AI investment, but financing that spending — alongside persistent government deficits — increases competition for capital, requiring more savings or higher real returns to attract them, he noted.
That dynamic makes Shah reluctant to call a top in yields simply because inflation eases. At the same time, he cautioned, a further increase in yields would require “fresh repricing of growth, policy, or term premia.”....
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