NEW YORK (TheStreet) -- The yield on the 10-year Treasury has popped from 1.7% in January to 2.4% after the positive May jobs report. The recent upward thrust is merely the beginning, said Kirk Barneby, portfolio manager for the Centre Active U.S. Treasury Fund. 

"If you simply look at the relationship between growth and nominal gross domestic product and the yield on the 10-year, it's a very significant positive correlation over time," said Barneby. "So if we think about 2% real growth plus 2% inflation target assuming the Fed can engineer the economy smoothly to that 2% target rate of inflation that would imply a 4% rate of yield on the 10-year in longer term equilibrium."
 
The Centre Active U.S. Treasury Fund utilizes U.S. Treasury securities only, seeking to take advantage of rate changes through active duration management and monthly rebalancing. The fund, which is down 26 basis points year to date and has a trailing 12-month yield of 0.49%, is not permanently bullish or bearish on government securities. It held $110 million at last check.
 
As for reportedly heavy foreign buying in the U.S. Treasury market keeping a lid on rates due to nearly negative yields in Europe and Japan, Barneby said the impact has been overstated.
 
"Foreign can have an impact at the margin, but foreign buying is not going to keep rates significantly below where longer term equilibrium, inflation and growth conditions suggest where they should be," said Barneby.
 
Speaking of foreign pressure, IMF Managing Director Christine Lagarde publicly asked Federal Reserve Chair Janet Yellen last week to delay raising rates until "until there are greater signs of wage or price inflation than are currently evident." Lagarde is hoping to stay Yellen's hand until 2016.
 
Barneby disagrees with Lagarde due to the pickup in the economy. He is worried the Fed will fall behind the curve as employment statistics have improved substantially and is looking for the Fed move in September. The Bureau of Labor Statistics reported last week that the U.S. added a robust 280,000 jobs in May. The unemployment rate rose to 5.5% from 5.4% as more potential workers entered the labor market.
 
"We are in fact close to being fully employed, if not fully employed. Labor force momentum is positive. And if we wait until you get to the point where we are overly employed then you wind up behind the curve and it makes it more difficult to control economic growth and maintain inflation at its target."

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