Interest rates are rising for all the right reasons (In spite of what the dotard tells you)
The cost to borrow money is on the rise. That is bad news for home buyers and other prospective borrowers. It helped cause a stock market sell-off on Wednesday, and prompted President Trump to say that the Federal Reserve has “gone crazy.”
But it amounts to good news for the long-term direction of the economy.
In effect, the multitrillion-dollar global bond market is signaling a little greater confidence than it did just a few weeks ago that the nine-year expansion in the United States may have room to keep going for years to come, and without inflation taking off.
The yield on 10-year United States Treasury bonds reached a seven-year high this week of 3.25 percent (it receded some Wednesday as stocks dropped), up from 2.82 percent in August. The 10-year rate was below 1.4 percent as recently as July 2016.
But beyond those headline numbers, the details of how the prices of different types of securities have moved relative to one another tell a story that is decidedly optimistic.
For much of the last couple of years, short-term interest rates, which the Fed controls directly, have risen much faster than longer-term rates, which are set based on global supply and demand for bonds. The Fed was plowing ahead with rate increases, while investors were evidently skeptical that growth would be persistent enough to justify higher long-term rates.
In late August, the rate on 10-year government bonds was only 0.18 percent higher than for two-year government bonds, a phenomenon known as a flat yield curve. (When that number turns negative, it’s considered an “inverted yield curve” and is often a measure of looming recession.)
Since then, longer-term rates have risen faster than shorter-term ones. While the yield curve remains flat by historical standards (the gap between 10-year and two-year bonds was up to only 0.33 percent in recent days), it has moved in a direction consistent with a more optimistic outlook.
https://www.msn.com/en-us/money/markets/interest-rates-are-rising-for-all-the-right-reasons/ar-BBOe7R5?ocid=spartanntp
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