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iShares 20+ Year Treasury Bond Message Board

  • rbg5r rbg5r Aug 18, 2013 9:13 AM Flag

    Why are interest rates rising? I have hear a dozen or so reason. I am looking for a valid one based on fundamental demand and or inflation.

    Anyone got a good reason why the 10 year note is going to yield 3.75% or more? Cause those are some of the numbers I have been hearing.

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    • You ask - "Why are interest rates rising?"

      Interest rates and bond yields, as you well know, have been at all time lows and bond prices at all time highs. This is because our Federal Reserve Bank has been manipulating the treasury market by buying $85,000,000,000 worth of treasuries every month (QE) and keeping the overnight lending rate at zero.

      Now that the $85 billion is going to be reduced the floor for high bond prices is gradually going to be taken away. Bond investors now demand a higher yield before buying to compensate for taking the risk of possible rising rates and falling bond prices.

    • The Fed’s bond-buying is fueling inflation expectations, just like it did during QE1, QE2 and Operation Twist. The following are the dates of each QE iteration, the 10-year yield at the time the QE began (or was announced), and the level of the rates at the end of that particular QE.

      QE1 begins: 11/25/08 (3.1%)
      QE1 ends: 3/31/10 (3.8%)

      QE2 telegraphed (Jackson Hole speech): 8/27/10 (2.7%)
      QE2 ends: 6/30/11 (3.16%)

      QE3 begins: 9/13/12 (1.76%)
      Current 10-year yield (as of today): 2.03%

      Bottom line is that the Fed's bond-buying efforts are counter-productive, and accomplishing the exact opposite of the Fed's stated goals. Contrary to popular belief, rates fell (sometimes dramatically) each time QE ended.

    • Real inflation, based on how it was measured in 1980 has been running at 8-11 percent for the last 3 1/2 years.

    • ask yourself if you want to buy or hold long term US treasuries now. There`s your answer.

    • Very simply, it's default risk. Everybody knows most treasuries will ever be repaid. Some people are exiting the musical chairs game early to preserve their wealth.

      • 1 Reply to billy_berew
      • If it were that simple, why would Japan, with twice the public debt to GDP ratio as ours, have an interest rate of 1.81% for its 30-year bonds, while ours is now over twice that, at 3.86%? Does anyone really expect Japan to be able to repay those bonds without a heavy dose of inflation? Once you examine that conundrum, you have entered into the rabbit hole that is the bond market, which defies “simple” explanations.

    • Many large US Investors were waiting for the Euro countries to announce Crisis .
      They just announced some of their economies are performing much better than the USA.
      Under Merkel they will raise rates. The Euro triumphs while the US $ languishes.
      That is why the US long bond % rate rose higher Friday.
      The US $ is turning into the North America Peso.
      New Federal reserve to replace Bernanke could raise rates to prevent inflation.
      2008 US Bank Bailout costs the US citizens $5 trillion in debt or 1/3 of our new debt.
      US economic situation is not a pretty picture.

      Sentiment: Sell

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