Monday, September 13, 2010

The Bond Vigilantes

A fiery horse with the speed of light,
A cloud of dust and a hearty Hi-Yo Silver!
The bond vigilantes ride again.  (HT: Lone Ranger)

Proponents of additional stimulus and/or further Fed easing have pointed to low interest rates to claim that "deficit hawks" and "inflation mongers" have no clothes.

That was ostensibly correct on August 31, 2010, when the rate on the 10-year U.S. treasury note closed at 2.48%. Ten days later, on September 10, it closed 32 basis points higher at 2.80%.

Why? Who’s to say. Nor does it matter why. What matters is that interest rates can almost turn on a dime.  What is not a serious concern today about deficits, debt, and inflation can become a Greek-like problem tomorrow.

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