Rising yields on the 10-year U.S. treasury bond, now brushing up against 5 percent, will eventually crimp consumer spending and slow the economy, Jonathan Gray, president of Blackstone Group, the world’s largest asset manager, said last week in a Financial Times interview.

The interest rate on the 10-year bond benchmarks rates for mortgages and a variety of other loans. The higher it is, fewer consumers will be able to afford major purchases and credit card spending.

“When 30-year mortgages and car loans cost you 8 percent, it will impact consumer behavior,” Gray said. “Growth has been remarkably resilient but” if interest rates remain this high “for this long, invariably you will cause the economy to slow down.”

The 10-year bond yield ended Friday at 4.924 percent after briefly rising past 5 percent the day before; the 30-year bond was returning 5.078 percent.

The high yields dampen the value of other financial assets, he pointed out. High yields in an investment as safe as treasury securities make other investment venues less attractive.

Blackstone raised $25 billion from investors in this year’s third quarter, not the $32 billion that analysts had expected nor the $30 billion it brought in during the second quarter. Institutional investors are waiting to commit until the economic clouds begin to lift, Gray said.

High interest rates have cut the number of deals that private equity firms can profitably make, preventing them from cashing out of investments to pay off investors and make new buys.

“When interest rates settle and it is clear the Fed is done [raising rates] and the 10-year treasury settles, it will give more terra firma for investors,” he added. “Ultimately, the pent-up demand to sell businesses, to finance, and to deleverage—all of that has to come.”

TREND FORECAST: The U.S. treasury will keep shoveling new bond issues into an already strained market and the U.S. Federal Reserve will hold interest rates at or near their current levels well into next year. 

One result will be a continued rise in default rates and corporate failures, especially among companies with junk credit ratings. With credit harder to come by, more of those companies will simply vanish instead of being bought by rivals, which is the customary process.

Also, the bond blowout will help to drag the U.S. economy closer to a recession.

As a result, the bond blowout will continue and help drag the U.S. economy down into a recession.