Over the last three months, longer-term yields have been screaming higher while short-term rates have risen only modestly. In what's known as a
"When long-end rates go higher while nominal growth is [slowing] late in the cycle, it's a very dangerous cocktail for risk assets," he said. Back in 2008 and 2018, the Fed rescued the markets by easing financial conditions. But today, the Fed's hands are largely tied, as inflation remains well above the Fed's 2% target.
If the data comes in hot, Peccatiello said, investors would likely chase yields higher until they finally become a chokepoint in the markets. A 5% yield really "starts to become a real burden for risk assets," said Peccatiello.
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