(Drivebycuriosity) - The US bond market is under pressure and interest rates are spiking. The 10-Year Treasury bond yield jumped to 4.7% this week, the highest level since October 2007 ( cnbc).
(source )
On the first glance the rally doesn`t make sense. The inflation rate, the usual culprit, is falling. As I have explained inflation is normalizing and returning to the low rates we have enjoyed before 2020 ( drivebycuriosity).
But there is another explanation for rising interest rates: Maybe the market expects an booming economy in the coming 10 years.
I think this is plausible. We are in the begin of a new industrial revolution driven by Artificial Intelligence (AI). It is highly likely that AI will boost economic growth. Machine Learning will raise productivity of most jobs in the coming decade (discovermagazine)
If AI accelerates economic growth from today´s sluggish 2% up to 4% in the coming years we also could expect higher interest rates. Investors would ask for more capital to seize the growing opportunities. Borrowers would accept higher borrowing costs because AI will boost profits.
It is possible that some companies already experience a productivity boost, which fosters today`s demand for capital and helps to lift the interest rates.
Time will tell.
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