JPMorgan CEO Warns U.S. Treasury Yields Could Hit 6%

JPMorgan Chase Chairman Jamie Dimon has cautioned that the yield on the U.S. 10-year Treasury note could rise to as high as 6%. Dimon explained that a further 1-percentage-point increase from 5% would cause more economic and market damage than the previous rate-hiking cycle. He attributed the potential rise in long-term yields to persistent inflation and the dynamics of supply and demand.

Dimon emphasized that "there will be more pain when rates go from 5% to 6% than when they went from 4% to 5%." He warned that the yield on the U.S. 10-year Treasury note, which stood at 5.217% at that time, might increase due to factors such as growing investment in artificial intelligence infrastructure and fiscal deficits in major economies.

The AI-related bonds issued in the U.S. investment-grade corporate bond market in 2023 totaled around $250 billion, and capital expenditures by major AI companies and SpaceX are expected to surpass $1 trillion annually by 2030.

Additionally, Dimon highlighted mounting fiscal deficits in the United States, China, Europe, and other major economies as a potential risk. He noted that while it is uncertain when or in what form this could become a problem, it creates another risk in global capital markets. Continual government borrowing, combined with the AI sector's rising capital demand, could exacerbate pressure on global financial markets.

Concerns over weakening risk controls and global capital markets have led JPMorgan to tighten its credit standards. Dimon acknowledged that while U.S. consumers' finances and the labor market appeared resilient, excessive optimism should be avoided. If high real interest rates persist and unemployment rises due to Federal Reserve tightening, consumer finances could deteriorate rapidly.

The economic impact of higher yields will depend on the underlying drivers, such as stronger productivity or persistent inflation and external shocks.