It didn't take long for our interest rate warning last week to get a little more serious...
Last Wednesday, we ran a chart displaying the most important interest rate in the world... the yield offered by U.S. 10-year Treasury bonds. This is the world's "must watch" interest rate... the price Uncle Sam must pay creditors in order to borrow money. We said if the yield on this bond "breaks out" to a new yearly high into the 4% area, it's a sign the "higher rates ahead" crowd is right.
On that same day, the 10-year's interest rate exploded higher to register its largest weekly increase since December. Former Fed chief Alan "E-Z-Credit" Greenspan even took to the airwaves to warn folks that the move is a "canary in the coal mine" for higher borrowing costs ahead.
This move also causes us to remember author Robert Heinlein's classic quote, "there ain't no such thing as a free lunch." Bottom line: The U.S. government can only spend money like a lunatic for so long before creditors say, "Enough... we need more interest to compensate us for the risk of loaning money to a crazed spender." As you can see from today's chart, the recent "pop" in rates is getting us closer to a new high.
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