As turbulence in the global bond market builds, TS Lombard chief U.S. economist Steven Blitz says the Federal Reserve has repeated an “original sin” by easing before inflation was fully crushed. In his latest report, The Original Sin Repeated, Blitz argues that the 10-year U.S. Treasury yield could ultimately climb to 8% over the next several years.
The 10-year yield had already risen to 5.30% on Wednesday, its highest level since 2002. Much of Wall Street is debating whether 6% is the next key threshold. Blitz says that framing is too small. In his view, 5.75% is only the next staging point, while 8% is the longer-run target. He adds that such a move would put real pressure on equities and end the buy-the-dip reflex that investors have built over decades.
What Blitz means by the Fed’s “original sin”
Blitz defines the “original sin” of monetary policy as easing too early, before an economic slowdown has fully wrung inflation out of the system, “like taking another bite from the same apple.”
In his telling, the main culprit this time was former Fed Chair Jerome Powell. Late last year, with the labor market cooling but corporate profits recovering, Powell chose to cut rates. Blitz notes that the move came two months before the 2024 presidential election and, in practical terms, handed then-President Joe Biden a political gift.
Blitz says Powell was under “enormous pressure” from the government and from several people who wanted his job, including some members of the Federal Open Market Committee, who wanted Powell to “close his eyes and ease more.”
Now, Blitz says, Donald Trump, Treasury Secretary Bessent and economic adviser Bessent want new Fed Chair Warsh to carry out an accommodative policy in the next upswing by effectively looking the other way. At the September policy meeting, Warsh offered what Blitz described as limited resistance with a 25-basis-point hike, lifting the federal funds rate to a 3.75%-4.00% range. The vote was unanimous. Blitz’s response was blunt: “Why not 50 basis points?”
A recession that, in his view, never arrived
Blitz describes 2025 as “the recession that never happened.” After roughly 22 months of yield-curve inversion, private nonfarm payrolls excluding healthcare had already been falling, and real economic growth should have contracted. That outcome never materialized.
He gives two reasons. First, fiscal expansion was too large. Second, the Fed started cutting rates just as corporate profits were beginning to recover. Tariff policy, he says, added to the effect.
Blitz ties that view to two old Wall Street rules: profits lead employment, and employment leads inflation; and the mildest inflation year is often the first year of a recovery. That leaves 2026, in his words, as a “good year.” Under tariff and oil-price pressure, underlying inflation has actually cooled. But if stocks continue to cooperate from here, elevated profits could drive faster hiring and push core inflation higher again in 2027.
He also argues that this week’s August core PCE reading only looked “below expectations” because the actual 0.247% print was rounded down to 0.2%, while benchmark revisions mechanically lowered the whole series. At the same time, supercore inflation rose 0.4% month over month, the “other services” component posted its largest increase on record, and education costs also hit a record rise. The 10-year Treasury yield then erased all of its post-PCE decline.
Swap spreads as a fiscal-risk signal
The most distinctive part of Blitz’s argument is his reading of swap spreads. He says the deeper force behind rising yields is “excess sovereign debt supply.” Developed-market governments need to keep rolling over debt, fiscal deficits are expanding faster than nominal GDP, and central banks are no longer acting as the marginal buyer.
He points to swap spreads as the clearest market signal. Investors are increasingly choosing to receive floating overnight secured rates in 10-year maturities rather than hold fixed-coupon sovereign bonds. Blitz says that trend has existed in the United States since 2012, but after the pandemic it spread globally. Swap spreads in the U.K. and France have narrowed sharply, and Germany has moved closer to balance as well.
For Blitz, this is “a risk-preference issue, not a curve issue.” France and Germany share the same central bank, and the Bank of England usually follows the European Central Bank, yet swap spreads have diverged. In his reading, the market is pricing fiscal risk, not policy-rate paths or the inflation outlook.
He says his model of the U.S. 10-year swap spread shows that investor preference for Treasuries has been declining year by year even after stripping out the effects of curve shape and bank balance-sheet regulation.
Why he lands on 8%
Blitz’s central conclusion is that the mix of easy money and expansionary fiscal policy keeps lifting the floor for inflation and yields in every cycle, and that process will continue until the United States produces a genuine political willingness to suppress inflation at the cost of short-term growth.
He frames that divide as “Hamilton versus Jackson” — one side running the economy through the central bank, the other leaning on government policy. In his words, “the populism that will choose the next president leans toward Jackson.” He sums up the last decade of U.S. politics this way: “People are conservative on social issues and liberal on fiscal issues.”
He also says the nature of the yield rise matters. So far, the move has been driven mainly by real rates, which has pressured equities without triggering a selloff in the dollar. But if the driver shifts to an inflation-expectations premium, then “stocks may still do fine, but dollar bears will get their day,” and the long-awaited secular bear market in the U.S. dollar would truly begin.
One decisive variable, he says, is that the U.S. net savings rate has already fallen to zero and shows “no signs of improvement.” That is the backdrop for his headline call: “Ultimately, we are going to see the 10-year Treasury yield hit 8%.”
What breaks first, in Blitz’s view
Blitz does not predict the collapse of any specific asset. What he expects to break first is a market mindset: the firm belief that inflation will return to 2%, and the reflex that being long both stocks and bonds will always pay off.
For investors shaped by 40 years of falling rates and repeated buy-the-dip success, he sees a major adjustment in thinking.
The report notes that Blitz is not alone in sounding the alarm. According to the article, Goldman Sachs delta hedging head Rich Privorostsky said this week that the rates move has become “too punishing to ignore,” even though “equities have shown impressive resilience.”
The U.S. Treasury, the article adds, is not entirely powerless over yields. Rabobank had earlier described the Treasury Department’s expanded buyback plan in August as “lite yield-curve control,” while warning that higher yields worsen the fiscal outlook, which then raises the term premium and pushes yields higher again. The buybacks, Rabobank said, “interrupted that loop, but may not break it.”
Blitz’s closing judgment is direct: a government that refuses to accept a recession cannot choose its own ceiling for yields.