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From WSJ (April 5, 2010):
The 10-year Treasury yield, the benchmark for U.S. consumer and corporate borrowing, rose to 4% for the first time since June.
The move extends a steady increase by Treasury yields, which move inversely to prices, lifted by a combination of stronger economic data and the barrage of debt issued by the government to meet its financing needs. Recent Treasury auctions have met with much weaker demand and Monday’s move comes ahead of more auctions this week, with the Treasury Department set to sell $82 billion of Treasury notes and bonds.
The 10-year yield is a key benchmark for mortgage rates and other consumer and corporate lending.
My best take on the surge of 10-year rate is: this is due to more of investors’ early worry about US fiscal situation and rising long-term inflation expectation; rather than expectation of strong economic recovery.
Remember, the Fed can’t directly control long-term interest rate. IF the 10-y rate continues to rise as the result of rising inflation expectation, the Fed will be forced to raise short-term interest rate. This will put a brake on the tepid economic recovery, potentially causing a double-dip scenario, like the recession in 1981.
Now watch this great debate on the issue, between Jim Grant and Dave Rosenberg, on the topic whether “Treasury is for losers”…
Jim Grant holds the view that high inflation is ahead of us, and Rosenberg thinks deflation is a bigger risk, so treasury/bond securities are not bad bet.
(click to play, about 50 mins)