Interest Rates Are Heading Lower Says Financial Research Expert

The 10-year Treasury yield has climbed to 2.75% – a 1% increase during the past six months alone. This has led some market observers to say the Treasury yield is dying, but Gary Shilling, president of A. Gary Shilling & Co., disagrees. In the video above he tells The Daily Ticker that Treasury yields are heading lower–to under 2% for the 10-year and under 3% for the 30-year.

“It really depends on your view of inflation and deflation…the greatest determiner of bond yields. Now we’re at 1.2% inflation–the Fed wants 2% or higher. I think we’re going even lower. The real risk is deflation.”

When asked about the improving economy (growth in GDP and jump in October payrolls), Shilling says that the GDP was inventories. “It usually means you’re stuck with things you can’t sell, and most of those [new] jobs are low-income. When you look at the employment picture, mots of those jobs are low income people.” He says the job market is poor in terms of equality.

“We’re limping along about 2% for real GDP. We’ve got 1.5 million fewer people are employed now than at the peak and the pool of people who could be employed has increased by about 15 million. That’s one of the things that concerns the Fed.”

When the do start to taper the $85 billion worth of monthly asset purchases, Shilling still doesn’t expect higher rates. “When they talked about tapering back in May and June you saw huge spills in stocks and everything else. It’s not just tapering, it’s getting rid of the excess reserves.” What happens to rates will ultimately “depend on what else is happening in the economy.”

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