Veteran investor Peter Schiff is sounding the alarm on the bond market, arguing that the recent surge in Treasury yields is just the beginning of a much larger move. In a series of posts on X Monday, Schiff said the bond market has entered a structural bear market that will push yields far beyond their highest levels since 2007, and he's not mincing words about the implications for homeowners.
Peter Schiff Warns of 8% Treasury Yields and 10% Mortgage Rates as Bond Market Enters 'Bear Market'
MarketDash
The veteran investor says the bond market has shifted from a bull to a bear phase, with yields poised to break through multi-decade highs.
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Not the Same Bond Market as 2007
The 10-year Treasury yield touched 4.78% Monday, its highest level since 2007. But Schiff is quick to point out that the current situation is fundamentally different from that era.
"However, in 2007, Treasuries were still in a bull market, with yields headed lower. Now they're in a bear market, with yields headed much higher," Schiff said in a post on X.
Sees Room to Run Higher
Schiff laid out a clear roadmap for where yields could go next. Once the 2006 high of 5.15% is broken, he says the next targets are the 1999 peak of 6.44% and the 1994 high of 8.03%. To put that in perspective, he noted that the national debt was "well under $5 trillion" in 1994, compared with more than $40 trillion today.
That's a staggering increase in borrowing, and Schiff argues it's a key reason why yields have so much room to climb. The government's insatiable appetite for debt is putting upward pressure on long-term rates, and Schiff doesn't see that changing anytime soon.
Charlie Bilello, chief market strategist at Creative Planning, echoed some of those concerns. He pointed out that the national debt has grown by $715 billion since July 1, even as the Treasury doubled its buyback of long-dated bonds to $4 billion per operation. Bilello called it an approach that "doesn't solve the underlying problem" of continued heavy borrowing.
The Fed's Only Real Lever Is More Inflation
So what can be done to stop the rise in long-term yields? According to Schiff, the only real lever the Federal Reserve has is to ramp up quantitative easing. But he argues that would just be trading one problem for another.
"That just means more inflation and even higher bond yields later, but that's the choice politicians always make," he said. "That's why we choose gold."
Schiff's point is that the Fed is stuck between a rock and a hard place. If it does nothing, yields keep climbing, which could choke off economic growth. If it intervenes with more bond buying, it risks reigniting inflation, which would ultimately push yields even higher. Either way, Schiff sees trouble ahead.
Warsh's Hawkish Turn Is Already Hitting Wallets
The bond market is already feeling the effects of the Fed's hawkish shift. The 30-year Treasury yield climbed to a 19-year high this month as investors weighed inflation concerns, pushing longer-term borrowing costs higher across the board.
Fed Chair Kevin Warsh's hawkish Jackson Hole speech on Friday pushed the odds of a September rate hike as high as 66.4%, according to the CME FedWatch tool. That's a significant shift in market expectations, and it's already having real-world consequences.
Responding to a user who asked what an 8% 10-year yield would mean for mortgages, Schiff said it would send mortgage rates above 10%. For anyone thinking about buying a home or refinancing, that's a sobering thought. A 10% mortgage rate would put homeownership out of reach for many Americans and could send shockwaves through the housing market.
Schiff's warnings are stark, but they're not coming from left field. The bond market has been under pressure for months, and the recent moves suggest that investors are increasingly worried about the government's fiscal trajectory. Whether yields really do hit 8% remains to be seen, but Schiff's analysis is a reminder that the era of cheap money may be well and truly over.
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