SocGen's Edwards: 10-year Treasury Yields Will Fall To -1% In The Next Recession

Société Générale's bearish strategist Albert Edwards has told Investment Week he believes US 10-year Treasury yields will fall to as low as -1%, as he warned of "double bubble trouble" in US markets.

Edwards previously forecast that US 10-year yields will fall below zero but told Investment Week these could go as low as -1% in "the depth of the next recession" as they converge "totally" with Japan and Germany.

"Sound ridiculous? German 10-year yields were -0.2% last July," he added.

On Monday, rising inflation expectations caused a sell-off in the global bonds markets with spreads in US 10-years widening to 2.73%, the highest point since April 2014.

Although Edwards predicted yields to widen beyond 3% first, he said they would drop into into negative territory as the US and Europe would "flip" over into outright deflation and central banks would adopt even more extreme measures such as negative interest rates and "helicopter" money.

SocGen's Edwards: We are now just one recession away from Japanese-style outright deflation

Edwards said: "We had negative 10 years in most 10-year government bond markets in Europe some 18 months ago and in Japan. The US was the outlier then.

"In the next global downturn, US 10-year yields will converge totally with Japan and Germany. It will be another deep downturn because of the credit and asset bubbles that global quantitative-easing (QE) has pumped up."

Furthermore, the bearish analyst said he expected the market crash to come a lot quicker than investors were expecting as the US now had "double bubble trouble" with bubbles in both corporate and housing debt.

He said the Federal Reserve's "easy-money" policies, which has driven household wealth to fresh highs, coupled with the savings ratio falling during the same period, had fuelled an "unsustainable credit bubble".

"Just like 2007, this is another economic boom fuelled by an unsustainable credit bubble that will inevitably blow up with a rooky Fed Chairman [Jerome Powell] in place."

In SocGen's annual Global Strategy Presentation, the permabear said it was Bank of Japan action, quantitative tightening (QT) or the fear of recession itself as the three factors which could trigger the next crash.

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