Most Popular
1. It’s a New Macro, the Gold Market Knows It, But Dead Men Walking Do Not (yet)- Gary_Tanashian
2.Stock Market Presidential Election Cycle Seasonal Trend Analysis - Nadeem_Walayat
3. Bitcoin S&P Pattern - Nadeem_Walayat
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
4.U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - Raymond_Matison
5. How to Profit from the Global Warming ClImate Change Mega Death Trend - Part1 - Nadeem_Walayat
7.Bitcoin Gravy Train Trend Forecast 2024 - - Nadeem_Walayat
8.The Bond Trade and Interest Rates - Nadeem_Walayat
9.It’s Easy to Scream Stocks Bubble! - Stephen_McBride
10.Fed’s Next Intertest Rate Move might not align with popular consensus - Richard_Mills
Last 7 days
Stocks, Bitcoin and Crypto Markets Breaking Bad on Donald Trump Pump - 21st Nov 24
Gold Price To Re-Test $2,700 - 21st Nov 24
Stock Market Sentiment Speaks: This Is My Strong Warning To You - 21st Nov 24
Financial Crisis 2025 - This is Going to Shock People! - 21st Nov 24
Dubai Deluge - AI Tech Stocks Earnings Correction Opportunities - 18th Nov 24
Why President Trump Has NO Real Power - Deep State Military Industrial Complex - 8th Nov 24
Social Grant Increases and Serge Belamant Amid South Africa's New Political Landscape - 8th Nov 24
Is Forex Worth It? - 8th Nov 24
Nvidia Numero Uno in Count Down to President Donald Pump Election Victory - 5th Nov 24
Trump or Harris - Who Wins US Presidential Election 2024 Forecast Prediction - 5th Nov 24
Stock Market Brief in Count Down to US Election Result 2024 - 3rd Nov 24
Gold Stocks’ Winter Rally 2024 - 3rd Nov 24
Why Countdown to U.S. Recession is Underway - 3rd Nov 24
Stock Market Trend Forecast to Jan 2025 - 2nd Nov 24
President Donald PUMP Forecast to Win US Presidential Election 2024 - 1st Nov 24
At These Levels, Buying Silver Is Like Getting It At $5 In 2003 - 28th Oct 24
Nvidia Numero Uno Selling Shovels in the AI Gold Rush - 28th Oct 24
The Future of Online Casinos - 28th Oct 24
Panic in the Air As Stock Market Correction Delivers Deep Opps in AI Tech Stocks - 27th Oct 24
Stocks, Bitcoin, Crypto's Counting Down to President Donald Pump! - 27th Oct 24
UK Budget 2024 - What to do Before 30th Oct - Pensions and ISA's - 27th Oct 24
7 Days of Crypto Opportunities Starts NOW - 27th Oct 24
The Power Law in Venture Capital: How Visionary Investors Like Yuri Milner Have Shaped the Future - 27th Oct 24
This Points To Significantly Higher Silver Prices - 27th Oct 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Another Challenge for Government Bonds?

Interest-Rates / International Bond Market Mar 19, 2010 - 10:18 AM GMT

By: Mike_Larson

Interest-Rates

Best Financial Markets Analysis ArticleIt should be pretty clear that I’m bearish on the bond market. The massive budget deficits and debts we’re racking up should hammer Treasury prices. So should the steadily growing concern about the credit quality of sovereign debts.


In fact, Moody’s Investors Service just weighed in again on that front. It warned that both the U.S. and the U.K. are “substantially” closer to losing their AAA debt ratings. A key reason? Debt servicing costs — ongoing interest and principal payments — are surging!

By 2013, the U.S. will have to spend more than $1 of every $10 in revenue on debt service under Moody’s “baseline scenario.” The agency’s “adverse” scenario is even worse — calling for 15 percent of revenue going towards covering our debts. And we all know the ratings agencies have historically been too timid when it comes to their predictions. If anything, things will turn out worse than projected!

Now I want to talk about yet another challenge for the bond market. It’s a traditional one — better economic data.

Recovery May Be Bought and Paid for in Washington … but It’s Gathering Steam

Let’s be up front about one thing: This is not the kind of blockbuster economy we had in the late 1990s. It’s an economy whose growth has been bought and paid for in Washington — using borrowed money! That means it will eventually collapse under its own weight.

But that hasn’t happened yet. Instead, all the latest data suggests the recovery is gathering steam …

  • Housing starts and building permits are holding steady in the 550,000 to 650,000 range, rather than deteriorating further. This fits with the major housing market bottom call I made almost a year ago.
  • Industrial production rose 0.1 percent in February, while capacity utilization rose to 72.7 percent. That was the eighth month in a row of improvement in the utilization rate. It’s now at a 14-month high.
  • Retail sales rose 0.3 percent, while “core” sales excluding autos climbed 0.8 percent. Both figures topped estimates.
  • Even consumer credit rose by $5 billion in January, the first monthly rise in a year.

So on TOP of massive budget deficits … on TOP of the biggest rise in U.S. debt ever … and on TOP of increasing sovereign credit risk, you have an economic rebound underway. That’s going to put even more pressure on bond prices, and help to push interest rates higher.

Pressures on bond prices are building and bound to force interest rates higher.
Pressures on bond prices are building and bound to force interest rates higher.

I think that’s especially true now that the Federal Reserve has just weighed in AGAIN with a pledge to keep short-term rates at “exceptionally low levels” for an “extended period.” When the economy recovers, the Fed is expected to start normalizing policy. It’s not — and it won’t do so anytime soon. So I believe the bond market will do it for Chairman Bernanke instead, by driving long-term rates higher!

Some Bond Market Targets

Just exactly what kind of move in bonds do I foresee? Let’s put some targets out there!

Long bond futures were recently trading around the 119 price level. I think we’re headed to the low 100s by the end of 2010.

What about the benchmark 10-year Treasury Note? The yield there has been hanging out in the 3.6 percent – 3.7 percent area for a while. That won’t last. I expect to see the high 4s later this year.

As for other long-term rates, like those charged on 30-year fixed mortgages, they’re going up, too. I’d lock in the 5 percent-and-change rates available right now … before they’re gone! You’re going to be looking at something in the 6s by this time next year.

Bottom line: The days of cheap, ultra-low rates are behind us. It’s time to pay the fiddler!

Until next time,

Mike

Weiss and Weiss Research analysts offering the latest investing news and financial insights for the stock market, including tips and advice on investing in gold, energy and oil. Dr. Weiss is a leader in the fields of investing, interest rates, financial safety and economic forecasting. To view archives or subscribe, visit http://www.moneyandmarkets.com.


© 2005-2022 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in