Biggest Yield-GDP Gap Since 1966 Shows Room for Bond Pain
- Analysts boost forecasts on nominal growth to 32-year high
- Rising yield cannot keep up with growth upgrade on stimulus
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Even with the recent spike that saw the 10-year rate top 1.6%, Treasury yields haven’t been this low relative to U.S. economic growth estimates since 1966. That suggests the climb in rates may still have room to run.
Analysts are boosting their growth and inflation forecasts, with Americans on the cusp of getting stimulus checks under President Joe Biden’s $1.9 trillion package. The average projection for nominal gross domestic product hit a 32-year high of 7.6% in Bloomberg surveys. Even after doubling to 1.6% since November, 10-year bond rates can barely keep up with the growth upgrade, leaving the gap between the two likely to be the largest since Lyndon Johnson was president.