- Larry Fink says higher inflation could drive a steep sell-off in the bond market.
- BlackRock’s CEO thinks the 10-year Treasury yield could jump to 5.5%, the highest in about 25 years.
- He said that yields rising to that level could spark a sharp sell-off in the stock market.
The BlackRock chief Larry Fink says Treasury yields could soar to the highest level in over two decades, with inflation causing a bond market sell-off that spills over into the stock market.
The CEO of the world’s largest asset manager predicted that the yield on the 10-year US Treasury bond could rise to as high as 5.5% if inflation rises and hurts demand for government debt. That would represent the highest yield on the 10-year Treasury note in about 25 years, with the bond last reaching 5.5% in 2000.
Yields at those levels could catch investors off guard, as many probably aren’t pricing in the possibility of higher inflation, Fink said. He pointed to policies from the new administration that could create fresh pricing pressures in the economy.
“I believe it will unlock all this private capital and we’re going to have enormous growth,” Fink told CNBC on the sidelines of the World Economic Forum on Thursday. “At the same time, some of this is going to create new inflationary pressures. And I do believe that’s probably the risk that is not factored into the markets.”
He added: “There’s a probability we could see the 10-year over 5%, maybe even 5.5%. That would shock the equity market. That would not be a good scenario.”
The 10-year yield surpassing 5% isn’t Fink’s base case, but he suggested that if it were to occur, it would likely spark losses in the stock market, adding that such a scenario could have a “very negative impact” on equities and could “force a revaluation.”
Bond yields have been sent on a wild ride in the past year, partly because of concerns about a resurgence of inflation, which could cause interest rates to stay higher for longer as the Federal Reserve tightens monetary policy to cool prices down.
Economists, meanwhile, have criticized some of President Donald Trump’s policies — like his plan to levy steep tariffs on China, Mexico, and Canada — as inflationary. Trump has pushed back on that point, promising to lower prices for Americans in his second term.
But bond investors have been highly sensitive to news about Trump’s trade policy, with yields spiking earlier in January on fears of aggressive trade policy and a hot economy. The 10-year rapidly approached 5% this month before pulling back on more-benign inflation data and softer-than-expected tariff orders on day one of Trump’s term this week.
Concern about the national debt has also weighed on the bond market. A group of investors known as bond vigilantes could refuse to buy Treasurys or sell their holdings to pressure the government to exercise more fiscal restraint.
Fink added that yields touching 5% could be a major catalyst in pushing the conversation about managing the US debt. The federal debt balance clocked in at a record $36.2 trillion on Thursday.
