Interest rates on bonds shot up last Wednesday then retreated Thursday and Friday but finished higher for the week. This caused a spike in mortgage rates that are closely tied to the 10 year bond. Today the 10 year bond yields again climbed as supply exceeded demand. Yes, the basic law of supply and demand that we learned in Economics 101 in high school is still in play. Nobody has the power to alter it!
There were several reasons given for the rise by the financial news people that included selling treasuries by mortgage brokers as hedging for future inflation, the large amount of Government borrowings, and a re-allocations of funds away from bonds and into stocks. Probably all of these are true and combined to cause the increase.
What can we expect in the future? The Government is going to be in the market selling massive amounts of bonds to raise money for all the spending that is going on. This is going to cause rates to rise. The only option the Federal Reserve has to keep rates in check is to buy bonds but this is the same as creating money(running the presses) and will cause inflation which will cause rates to rise. The Feds only option to check inflation is to raise interest rates to slow down the economic which will cause people to lose their jobs and that will require more Government spending to stimulate the economy.
SEAMS LIKE A VICIOUS CIRCLE TO ME!
