Yardeni says surging bond yields threaten real estate, urges Fed caution

Ed Yardeni, President of Yardeni Research, pointed out the substantial impact of soaring bond yields, likening it to a form of tightening monetary policy.

In an interview with CNBC-TV18, Yardeni shared insights into the challenges posed by a 5% 10-year bond yield, particularly for the commercial real estate sector.

The benchmark 10-year Treasury yield in the US rose 5 basis points on October 9 to 4.795%.

Last week, the yield on the 30-year US Treasury bond crossed 5% for the first time since 2007.  "Cracks" are appearing as emerging market sovereign bonds come under pressure on the heels of rising US treasury yields, the world's risk-free benchmark that draws money from other investments as interest rates rise, a Reuters report said quoting Goldman Sachs economists.

He contends that the Fed should acknowledge that the escalating bond yields are effectively performing the tightening role, alleviating the need for further immediate action.

“The Fed needs to recognise that the incredible increase in the bond yield is already a form of tightening. The bond markets doing a lot of the work for the Fed from here on; I mean, 10-year bond yield is close to 5% is quite a disaster for commercial real estate. So, we have had this rolling recession that is now rolling through commercial real estate, and I do not think the Fed needs to do anymore,” said Yardeni.

While talking about monetary policy, he began by cautioning that the Federal Reserve should avoid pushing its monetary policy too far.

“The Fed has to recognise that the economy is still very resilient, they don't want to push this thing too far. I mean, if wage inflation is coming down, and if we get a decent consumer price index (CPI), the expectation is 0.3% - couldn’t be lower if the rent inflation finally comes down. I think inflation is coming down without a recession, if that is the case then I don't think the Fed should not push this thing too far,” he said.

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