The bond market is flashing warning signs, and Apollo Global Management’s chief economist Torsten Sløk is sounding the alarm. He believes the recent spike in bond yields is pointing toward stagflation, a dreaded economic scenario where inflation remains high while growth slows.
Sløk’s concerns stem from the bond market’s pricing behavior. Yields on U.S. Treasuries have surged, reflecting investor fears that inflation will remain stubborn while economic expansion weakens. The 10-year Treasury yield recently hit 4.61 percent, climbing 63 basis points since early April. This movement suggests that traders are bracing for a prolonged period of economic stagnation.
Stagflation is one of the most difficult economic conditions for policymakers to manage. Unlike a typical recession, where central banks can cut interest rates to stimulate growth, stagflation presents a dilemma. Lowering rates risks fueling inflation, while tightening monetary policy could further slow the economy.
Sløk pointed to tariffs as a contributing factor. He argued that protectionist trade policies are driving up costs, making goods more expensive and reducing overall economic activity. Higher prices and weaker growth are a dangerous combination, and the bond market is already reacting.
Wall Street analysts are taking notice. JPMorgan CEO Jamie Dimon recently warned that global fiscal deficits and trade restructuring could fuel inflationary pressures. Nobel laureate Paul Krugman echoed similar concerns, predicting that price increases from tariffs could hit within weeks.
Sources:
https://finance.yahoo.com/news/top-wall-street-economist-says-170002296.html
https://www.apolloacademy.com/a-modest-stagflation-shock-but-not-a-recession/