Spiking bond yields are stoking financial chaos – and the Fed will have to clean up the mess, JPMorgan strategist says

Worried trader
Wall Street is fretting about soaring bond yields.Don Emmert /AFP/GettyImages
  • A financial crisis is brewing as bond yields soar, according to JPMorgan Asset Management's David Lebovitz.

  • "Eventually there's going to be a financial accident… something will break," he said Monday.

  • Lebovitz's warning comes with 10-year Treasury yields at 16-year highs.

Soaring bond yields risk triggering financial chaos, a JPMorgan strategist has warned.

David Lebovitz said Monday that the ongoing fixed-income sell-off could spark market turmoil – and that some sort of "accident" will be necessary to persuade the Federal Reserve to start slashing interest rates in 2024.

"If rates continue to rise the way that they've been rising, eventually there's going to be a financial accident, eventually something will break and that will get the Fed moving in the other direction," Lebovitz, who's a global markets strategist for JPMorgan Asset Management, told "Bloomberg Surveillance on Monday."

"But it seems like the equity market still has this idea that the Fed's going to ease for easing's sake in 2024 and I just can't get there," he added, referring to traders' expectation that borrowing costs could start to fall next year.

Lebovitz's warning comes at a time when Wall Street has started to fret about soaring bond yields as the market starts to feel the full force of the Fed's most aggressive tightening campaign since the 1980s.

10-year US Treasury notes now offer returns of just under 4.7% – good for a 16-year high. Meanwhile, 30-year yields have spiked 82 basis points to nearly 4.8% this year.

Higher yields tend to be bad news for stocks – because they reduce the relative returns offered by a riskier asset class.

They can also wreak havoc on financial institutions. In March, California lender Silicon Valley Bank collapsed after it disclosed it had lost $1.8 billion on its bond portfolio, sparking mass customer withdrawals.

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