Veteran investor Peter Schiff said “Treasury bonds will continue to sell off” no matter what the Federal Reserve decides Wednesday, arguing bonds are in a genuine selloff that a single small rate hike can’t reverse.
‘The Fed Is Far Behind the Curve’
The central bank’s small hikes “will not allow it to even catch up, let alone get out in front, which is necessary,” Schiff told Benzinga on Sunday.
A quarter-point move this week, or another in December, would be “too little, too late” in his view.
He added that “much more aggressive rate hikes are needed, as is a contraction in money supply and reduction in the size of the Fed’s balance sheet,” though he does not expect it to happen.
‘A Sign of Desperation’
The Treasury’s escalating bond buybacks amount to “a sign of desperation,” Schiff said, arguing President Donald Trump‘s administration is trying to prevent the market from pushing rates higher so it can avoid the consequences of being “less fiscally irresponsible.”
The department has ramped up the program in stages since August, doubling its long-term buyback size before tripling it to a $6 billion maximum for a recent operation to buy back off-the-run notes and bonds, even as yields continued to climb.
“The markets will prevail in the end,” Schiff added.
In his view, the real inflation threat stems from government spending and Fed policy rather than the Iran war, though the war worsens conditions and has prompted a repricing of U.S. fiscal risk.
Yields of 5% or even 6% still wouldn’t make bonds attractive, he said, since he expects inflation to average higher than that over time, and higher yields will “cause a stock market selloff as they reduce the present value of their future incomes.”
The Treasury Department and the Fed did not immediately respond to Benzinga’s request for comment.
Yields Break Through Key Thresholds
The 10-year Treasury yield reached 5.014% on Monday, its highest level since October 2023 and just shy of the roughly 5.02% mark that would put it at its highest since July 2007.
The 30-year Treasury yield climbed above 5.37% on Monday, extending its rise to the highest level since 2007.
The odds of the Fed raising rates are 92.4% for a Federal Reserve rate hike on Wednesday, according to the CME FedWatch tool.
Economist Justin Wolfers said in his blog, ‘Platypus Economics, ‘ published on Saturday, the Fed meeting carries risk regardless of the outcome: a hike would land Fed Chair Kevin Warsh on “the President’s naughty list,” while a hold would push Wall Street to question “who Kevin Warsh really is.”
Either way, he said, “expect fireworks.”
Price Action: The iShares 7-10 Year Treasury Bond ETF (NASDAQ:IEF) closed 0.09% lower Monday at $90.93 and edged up 0.09% in extended trading. Meanwhile, the iShares 20+ Year Treasury Bond ETF (NASDAQ:TLT) rose 0.07% to $80.93.
Benzinga Edge Rankings indicate iShares 7-10 Year Treasury Bond ETF has a Momentum score in the 23rd percentile and negative price trend across the short, medium and long term.
See More:
Top Momentum Stocks
Disclaimer: This content was partially produced with the help of AI tools and was reviewed and published by Benzinga editors.
Photo Courtesy: Sommart Sombutwanitkul on Shutterstock.com
