The bond market is finally working the way it should work, says Ed Yardeni
Speakers
Ed Yardeni
— President, Yardeni Research
Summary
Ed Yardeni discusses bond vigilantes, sovereign debt pressures, and rising global yields, but argues U.S. 10-year yields are normalizing in a 4-5% range. He remains bullish on equities and sees the S&P 500 reaching 8400 by year-end on strong earnings momentum. He flags geopolitics and oil as the top risks while treating higher bond yields as a sign of economic strength.
- Global long-dated yields, including 30-year German and U.S. yields, are at multi-decade highs.
- Yardeni says bond vigilantes are active in Japan, the UK, and the US because of high debt-to-GDP ratios.
- He views the U.S. 10-year Treasury yield as normal at 4-5% and expects buyers at 5%.
- He believes the bond market is now allocating capital efficiently after years of Fed-driven near-zero rates.
- He argues strong economic growth is creating earnings momentum rather than 1999-style FOMO.
- He expects S&P 500 EPS to rise toward $415 and the index to hit 8400 by year-end.
- Geopolitics and oil are his top worry-list risks, with the Strait of Hormuz still unsafe.
Ideas
Japan and UK bonds face vigilante pressure.
Bond vigilantes are clearly active in Japan and the United Kingdom because both countries have a lot of debt relative to GDP; Japanese bond yields have increased dramatically and the same is happening in the UK, making those sovereign bond markets vulnerable to fiscal-debt-driven yield pressure.
Oil remains geopolitical upside risk.
He puts geopolitics and oil at the top of his worry list; the Strait of Hormuz is still not a safe passage, yet oil is still getting out of the region and oil prices have soared, making oil a key upside and inflation risk to monitor.
S&P 500 to 8400 on earnings.
Strong economic growth is translating into what he calls 'fabulous earnings momentum' rather than 1999-style FOMO; analysts currently see $408 S&P 500 EPS next year, and he expects that to rise to about $415 with a 20.2 multiple, pushing the S&P 500 to 8400 by year-end.
