Friday, 19 June 2009

US long term rates keep rising

The 30 year US treasury bond rate is up 12 basis points in a week. Rates up up exactly 200 basis points since the beginning of the year. That is equivalent to 8 Fed rate hikes.

A trend seems to have emerged, which if it is sustained, should see long-term US interest rates above 5 percent within a month or so.

There's two ways of looking at this recent development. The first suggests that US treasury bonds have become inherently more risky. Therefore, the increase simply reflects what's going on in the US government and should leave rates elsewhere largely unaffected. This is a benign interpretation, where higher rates is just an American problem

The second interpretation is much more malign. Higher US treasury rates will drag up interest rates across the world, killing off the tentative recovery that is now taking place. In other words, the world is looking at a double dipping W-shaped recession.


mike said...

I also think the recession (and house price falls/rises) will be W shaped. At the moment the very low interest rates disguise a huge problem which is lurking around the corner. I am a believer in the 'son-of-sub-prime'. A big impact will be on those people in the US and UK who are paying interest only mortgages. Impact will again be affecting the sub-prime lenders.

K T Cat said...

Next week we will set a record for the most debt ever auctioned at one time by the US Government.