Edward Conard

Top Ten New York Times Bestselling Author

  • “Unintended Consequences represents the most cogent and persuasive analysis of the Financial Crisis to date.” - Andrei Shleifer, 1999 John Bates Clark Medal Winner
  • “Unintended Consequences offers deep and well-argued analyses on almost every issue.” - The New York Times
  • “…reminds us that inequality sends a signal of what society lacks most, in America’s case, entrepreneurship and risk taking.” - Lawrence Lindsey, CEO, The Lindsey Group, former Director of the National Economic Council
  • “…a comprehensive explanation of the modern economy.” - Julian Robertson, Founder, Tiger Management
  • “A full-throated defense of economic dynamism.” - The Wall Street Journal
  • “…reminds us that inequality sends a signal of what society lacks most, in America’s case, entrepreneurship and risk taking.” - Lawrence Lindsey, CEO, The Lindsey Group, former Director of the National Economic Council
  • “…challenges misconceptions that distort our economic debates.” - Arthur Brooks, President of the American Enterprise Institute
  • “…a comprehensive explanation of the modern economy.” - Julian Robertson, Founder, Tiger Management
  • “Unintended Consequences is far smarter and more thought-provoking than most economics written for the general public” - Greg Mankiw, Harvard University, Former Chairman of the Council of Economic Advisors
  • “…a fresh argument for the productive value of inequality.” - David Autor, Professor of Economics, Massachusetts Institute of Technology
  • “…serious thinking for serious thinkers. …a thought-provoking blueprint for growing middle- and working-class incomes.” - Mitt Romney, former Governor of Massachusetts
  • “…a very valuable contribution.” - Larry Summers, former Secretary of the Treasury and director of the National Economic Council, president emeritus, Harvard University
Upside of Inequality Oxford Unintended Consequences

AI Summary. Bond yields near 4.5% sit below the 5.5% short-term interest rate, leaving little risk premium, and those yields have been enough to draw buyers back toward normal bond holdings. The author argues yields still need to rise to a sustainable cost of capital given structurally higher fiscal and inflationary spending.

Karen Karniol-Tambour Bridgewater Associates
Date Posted:

Bridgewater Associates co-CIO Karen Karniol-Tambour expects 10-year Treasury yields to rise from the current ~4.5% to compensate for structurally higher fiscal borrowing and investments in AI, remilitarization, rebalancing of supply chains, and energy.

Do bond yields still need to rise further?

Core argument: Bonds are clearing at roughly 4.5% yields, low relative to the 5.5% short-term interest rate, and even allowing for expected easing, the author argues that level embeds little risk premium.

Bonds are clearing at the roughly 4.5% yield levels we’ve seen. This is pretty low relative to the short-term interest rate of 5.5%, and even with expectations of some easing ahead of us, it is hard to argue there is much risk premium in that yield level. Even 4.5% yields were sufficient to persuade bond buyers to begin to normalize their abnormally low bond holdings. This can be thought of as “pent-up demand” for bonds, which slows the process of adjustment to a new cost of capital. Bond yields still need to rise to set a price of capital that is sustainable for the world we’re in, compensating for structurally higher fiscal stimulation and inherently inflationary spending on things like AI investments, remilitarization, rebuilding supply chains to reduce reliance on China, the energy transition, and energy security.

Takeaways by Macro Roundup® AI

  1. Bonds are clearing at roughly 4.5% yields, low relative to the 5.5% short-term interest rate, and even allowing for expected easing, the author argues that level embeds little risk premium.
  2. Yields of 4.5% were enough to prompt bond buyers to begin normalizing abnormally low bond holdings, a "pent-up demand" for bonds that slows adjustment to a new cost of capital.
  3. The author argues bond yields still need to rise to a sustainable price of capital that compensates for structurally higher fiscal stimulation and inflationary spending on AI investment, remilitarization, rebuilding supply chains to reduce reliance on China, the energy transition, and energy security.

Related Articles:

  • Quo Vadis, r*? The Natural Rate Of Interest After The Pandemic — Estimates of the natural rate of interest across core advanced economies suggest it may have increased, though the estimates are widely dispersed and statistically uncertain. Low expected potential growth and rising longevity may weigh on the natural rate, while large fiscal deficits, age-related spending, and public investment needs for infrastructure, defense, and the green transition may push it up.
  • Higher Interest Rates Are Here to Stay — Interest rates will likely stay higher over the next decade than in the decade after the 2008 financial crisis, reflecting factors including high debt levels, deglobalization, higher defense spending, the green transition, populist demands for income redistribution, and persistent inflation. Aging populations may also push developed countries to increase spending.
  • Capital Is Making a Comeback — Tangible investment in property, factories and equipment fell from 12.5% to 8.5% of private gross domestic product, while intangible investment in intellectual property, software and process knowledge rose from about 11.5% to 16.75%. The author argues demand for tangible capital investment will now have to rise.
Showing 96 database articles primarily about Investment