A Bad Case Bond Move is More Than Half Over

The worst case scenario for bonds is runaway inflation. One of my lesser bad cases is normalization where rates go back to where they were before QE. The 10-year yield was around 5 percent before the 2008 financial crisis kicked off. Inflation was elevated then, not as high as now, but I could imagine the CPI settling down to where 5 percent on the 10-year made sense. I'm not arguing for that scenario here. What I want to point out though, is that is probably the highest rates could go if inflation comes down. That's an outlier target I think, and it would probably take years to get there instead of months like the current trajectory implies. If that is the eventual destination, it is more than halfway there. If inflation comes down fast like in 2008, then rates are probably already peaking for this 2020-2022 cycle.

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