http://online.wsj.com/article/BT-CO-20101110-714699.html http://www.reuters.com/article/idUSNYD00372720101110 The yield of US government debt rose yesterday, on the heels of the fed's quantitative easing. Yield goes like the inverse of price, which means the price went down, which signals a falling demand. To be clear, this isn't particularly worrisome, or even unexpected, in and of itself. However, if the trend continues, the rate at which the US government issues debt will increase. Many of the calculations you see regarding the deficit in the future rely on specific assumptions about growth and interest rates, and rising yields on US debt is certainly one of the things that will affect the calculation. So what are your thoughts, sci?
Answer: 1) No I am not worried. 2) We have had this dicussion before. Interest rates will at some time start to rise. That is what happens when you have a growing economy. The reason rates are so low now is because aggregate demand is low. 3) When interest rates start to rise you are going to see the bursting of the bond bubble. And a lot of average Joes and Janes are going to get creamed yet again...thinking that their bond investment portfoilos can never go down.
Demand is low because no one know how much money will cost under the Democrats new budget. (They didn't even attempt to introduce one before the election) No one knows what the tax rates are going to be because the Democrats don't have a budget. No one knows what the cost of doing business under Obama care is going to cost.
How is this different when Republicans failed to produce a budget? And what about the evidence to support you other claims, where is it?
Sorry to get here 10 days after the OP. I can't be sure of facts but recall and theory supports idea that the long 30 year bonds fell in price and the 10 year bonds went up in price as / when the FED said that and shorter maturity was where they would concentrate their buying. In general, I think most of the long term buying is as a secure (in face value) investment to off set long term obligations. I.e. an insurance company has good idea home may millions it must pay out in 2040 and does not really care what a dollar will buy then. People who are interested in that are not buying 30 bonds with the government's printing presses running 24/7 now.
