Tags: Schutte | Treasury | yield | 7%

BMO's Schutte: 10-Year Treasury Yield Could Reach 7 Percent in 2 Years

By Dan Weil   |   Monday, 09 Sep 2013 10:58 AM

The recent surge in interest rates has a lot further to go, says Brent Schutte, market strategist at BMO Private Bank.

The 10-year Treasury yield reached a two-year high of 3 percent Friday. Schutte sees that rate rising to 4 percent by early next year, and possibly 7 percent in the next two years, he tells CNBC.

Stronger U.S. economic growth, tapering by the Federal Reserve of its quantitative easing (QE) and rising inflation will push yields higher, Schutte explains.

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As for the economy, Europe and Japan "are actually becoming less of a headwind," boosting the U.S. economy, he notes.

Nominal GDP growth of 5 to 6 percent (currently 3 to 4 percent real growth) could easily push the 10-year Treasury yield to 6 to 7 percent, Schutte contends.

When it comes to the Fed, "you've run out of the benefits of QE. It's done what it's supposed to do," he argues.

On the price front, a growing economy naturally pushes inflation higher, Schutte explains. "Just because there's not inflation now, that doesn't mean there won't be."

Consumer prices rose 2 percent in the 12 months through July.

To be sure, bonds rebounded after weak August jobs data Friday, and some experts say that move will continue.

"The economy has been stuck in low gear for years and nothing seems to be breaking the paradigm of slow growth and slow job gains," Jay Mueller, a bond fund manager at Wells Capital Management, tells Bloomberg. "The data is bond-market friendly."

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