Video: What you're not hearing about what higher yields are telling us

The US 10-year yield has backed up to 4.6%, 68 bp from the lows of the year, the day the war in Iran started. We said "four is the floor," but that prediction was based only on our belief that we are in a productivity supercycle in which riskless bonds would have to pay to compete with risk-on opportunities. 40% of the back-up has been the 27 bp expansion in the TIPS breakeven spread, because yields need to compensate for lost purchasing power thanks to higher oil and commodity prices. The 5-year 5 years forward TIPS breakeven has only expanded by 15 bp, little more than rounding error. 60% of the back-up has been the 41 bp back-up in real yields, implying that growth prospects are intact. Since 1962, the 10-year yield has been on average far higher, at 5.8%  In the productivity supercycle that began in 1983, it averaged even higher at 7.1%. Throughout history, higher Treasury yields have pointed to higher growth in the coming year, just the opposite of the conventional wisdom that high yields suppress growth and lower yields stimulate it. From here, beware of real yields falling, because this could imply central banks are making the error of tightening into higher oil prices, mistaking an energy supply-shock for inflation.