Kunst

Is the Long Bond Cracking?

With all the stimulus and bailouts going on, the Fed and the US government are pouring money into the economy. Granted it is replacing lost capital, but it still pushes the money supply up compared to a more passive approach. With Obama's stimulus plans, the federal budget deficit could be in the $1 trillion annual range for the next two years. If they finance this by selling treasuries on the open market, that increase in supply should push prices down and rates up. If the Fed buys treasuries to keep rates down, it creates new money that will push inflation up, which will also put upward pressure on rates. Either way, it's hard to see how treasury rates can go anywhere but up.