Why fixing the housing crisis for under-40s could trigger 10% Treasury yields

By Jamie Chisholm

Bond prices will dive as structural inflation builds, says hedge-fund manager

Housing prices must fall in real terms to help younger buyers.

Another surge in oil prices is stoking inflation concerns and helping force benchmark borrowing costs to multimonth highs. The 10-year Treasury yield, which moves inversely to the note's price, closed Thursday at 4.703%, its highest level since mid-January 2025.

Stock markets may become increasingly skittish should the 10-year start getting near the 5% mark. But what if the benchmark yield hits 10%?!

That's the prediction of Russell Clark, founder of the award-winning London-based hedge fund Brumby Capital.

In a discussion this week on the Other People's Money podcast, Clark said investors are not prepared for double-digit yields because they're trapped in an "echo chamber," applying the deflationary logic of the past four decades to a political and economic landscape that has fundamentally changed.

According to Clark, who authors the Capital Flows and Asset Markets blog, the financial architecture built during the Thatcher-Reagan revolution of the 1980s is being dismantled.

For 40 years, developed economies largely rewarded capital over labor. Globalization, cheap manufacturing, abundant savings and restrained wage growth all combined to drive down inflation and, ultimately, interest rates.

"We lived in ... this world where we were piling up bigger and bigger piles of capital, which pushed down the cost of capital, pushed down interest rates," Clark noted. "And now, instead of saving money, we're sort of spending it."

This structural pivot is creating an inherently inflationary backdrop. With governments committed to massive infrastructure spending, supply-chain reshoring and populist cost-of-living fixes, structural inflation is higher.

The linchpin of Clark's 10% Treasury prediction is the younger generation's defining economic grievance: housing affordability.

"If I look at people 40 and under ... their No. 1 problem is they can't afford housing," he said. "If you want to get housing back to some more reasonable levels, you need to have wages rising at about 7% a year - so doubling in 10 years - and then you need to have the housing market be flat in nominal terms, so falling in real terms."

That sounds politically attractive. Financially, however, it comes with a catch. If wages are rising that quickly, policymakers need to prevent capital from flooding into property and other hard assets. Savers have to be rewarded for holding cash instead, according to Clark.

"That requires you to have a real rate of about 3%, so that people keep their money on deposit rather than sticking to real assets," he said.

Add a 3% real interest rate to roughly 7% inflation generated by rapid wage growth and the arithmetic becomes uncomfortable. "That gives you an interest rate around 10%, and that's still my target for the [10-year] Treasury: a 10% yield."

In terms of what impact such a yield would have on stocks, Clark is sanguine about the artificial-intelligence economy, arguing that the top-tier tech companies will probably keep investing heavily to defend their competitive moats regardless of higher borrowing costs.

Where difficulties will arise is in the sectors where the cheap-money era is most embedded: private equity and private credit. Both have flourished in a world of falling interest rates, plentiful leverage and abundant global capital. If that backdrop reverses, business models built on refinancing ever-cheaper debt begin to look much more fragile, according to Clark.

"That would be the area [in which] much higher interest rates could potentially cause much bigger problems," he said.

The markets

U.S. stock-indices SPX DJIA COMP are mixed at the opening bell on Wall Street as Treasury yields BX:TMUBMUSD10Y dip from recent highs. The dollar index DXY is little changed as gold futures (GC00) trade around $4,048 an ounce.

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The buzz

U.S. President Donald Trump has rolled out a new regime of tariffs.

Brent crude futures (BRN00) traded above $100 a barrel - but later pared gains - after the U.S. undertook a 13th consecutive night of strikes on Iran.

Intel shares (INTC) are up after the chip company said sales surged 25% in the second quarter.

Stripe is in talks to buy OpenRouter for potentially about $10 billion, according to the Wall Street Journal.

American Express (AXP) shares are lower despite the company posting higher sales and profit in the second quarter, thanks to more spending among its credit card members.

U.S. economic data due Friday include the S&P flash services and manufacturing purchasing managers surveys for July, released at 9:45 a.m. Eastern, followed at 10 a.m. by new-home sales for June.

Inside China's all-out push to catch up with American AI chips.

The chart

It's not just rising energy costs that are an inflation worry right now, notes Matt Maley, chief market strategist at Miller Tabak. Concerns about unsuitable weather patterns and reduced supplies of fertilizer components from the Middle East are helping push grain prices up, too. He notes corn is up 13% since late June, with wheat up 22% to above its May highs. "Wheat is a significant driver of food prices ... through direct consumption, processed-food inputs, and cross-commodity linkages," Maley adds.

Top tickers

Here were the most active stock-market ticker symbols on MarketWatch as of 6 a.m. Eastern.

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-Jamie Chisholm

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