Wall Street Economist Warns: Bond Market Flashes Alarming Economic Signal

• Rising 10-year US Treasury yields, reaching 4.61% this week, signal market concerns about stagflation, driven by tariffs and the US budget deficit, as noted by Apollo Global Management’s chief economist Torsten Sløk.
• JPMorgan (JPM) CEO Jamie Dimon and Nobel laureate Paul Krugman warn that tariff-driven price increases and global economic pressures could lead to slower growth and higher inflation, potentially within weeks.
• The 2-year Treasury yield at 3.96%, down 28 basis points from the year’s start, reflects investor expectations of near-term economic weakening, complicating monetary policy responses in a stagflationary environment.

The bond market is flashing warning signs about the US economy, with rising yields signaling the potential for stagflation—a challenging environment marked by sluggish growth and persistent inflation. Torsten Sløk, chief economist at Apollo Global Management, highlighted the recent surge in the 10-year U.S. Treasury yield during a CNBC interview, noting its rise to 4.61% this week – up 63 basis points from early April lows – as a key economic indicator. This spike, as reported by BI, reflects growing concerns over the US budget deficit and the inflationary pressures expected from President Donald Trump’s tariffs, which Sløk notes will likely raise prices while curbing economic growth. The 2-year US Treasury yield, at 3.96% on Friday, down 28 basis points from the year’s start, suggests investors anticipate near-term economic weakness, potentially prompting lower interest rates.

Stagflation, a term echoing the economic struggles of the 1970s, poses a unique dilemma for policymakers. Unlike a typical recession, where central banks can cut rates to spur growth, stagflation limits such options due to the risk of fueling further inflation. Naomi Fink, chief global strategist at Nikko Asset Management, observes that the current 10-year yield range aligns with market expectations of a recession intertwined with stagflationary pressures. This sentiment is echoed by JPMorgan (JPM) CEO Jamie Dimon, who, in a Bloomberg interview, highlighted global fiscal deficits, remilitarization, and trade restructuring as inflationary forces, though he stopped short of predicting stagflation outright. Similarly, Nobel laureate Paul Krugman warned in a recent televised interview that tariff-driven price increases could materialize “within weeks,” likely accompanied by an economic slowdown, describing the outlook as “stagflation-lite” at minimum.

Market dynamics underscore these concerns. Consensus forecasts for US economic growth are trending downward, while inflation expectations are climbing, according to Sløk’s recent client note. The bond market’s movements reflect unease over tariffs, which are expected to elevate costs and disrupt growth, shifting Wall Street’s focus from trade deal optimism to the longer-term economic fallout. The combination of higher yields and declining growth expectations paints a sobering picture, with stagflation emerging as a growing risk. As inflationary pressures from tariffs and fiscal deficits intensify, the US economy faces a delicate balancing act, with monetary policy constrained and market signals pointing to turbulent times ahead.

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