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Nominal GDP grew about 8% annualized in Q2 while real GDP grew only 1.5%, with the GDP deflator around 6.4%, which tells you most of the increase in dollar activity came from higher prices rather than materially stronger real production. That helps explain why rates are elevated, but if much of the inflation impulse is being driven by the energy and shipping shock rather than an overheating domestic economy, then the same force keeping yields high is also destroying demand. Expensive oil, diesel, freight and electricity squeeze household purchasing power and corporate margins, weakening consumption, hiring and investment. I would not read rising yields as evidence of stronger future growth. I see an inflation shock temporarily forcing rates higher while laying the groundwork for the demand destruction that eventually pulls the entire curve lower. The 2 year and 5 year should fall first as markets price Fed cuts, while the 10 year and 30 year may lag because of fiscal supply, inflation uncertainty and term premium. But if the slowdown becomes severe enough, weaker growth and disinflation should ultimately pull the long end down as well.

onechancefreedm ↗