Ten Year at 4.79%

Figure 1: Ten year constant maturity Treasury (blue), on the run at noon CT (red dot), both in %. 4 thoughts on “Ten Year at 4.79%” baffling pushing for a nearly 1% increase in rates over a 6 month time period. can’t be good for the economy, no matter what trump claims. mortgage relief is now done. trump needs to be concerned the economy will tip into a recession before the November election. it is a real possibility now that rates have continued to climb this year. and if the fed raises rates before the election, it will occur. trump will be placing enourmous pressure on the fed to hold rates steady or cut. he can talk his way through inflation in November, but he knows a recession will be killer. he created this problem with his incessant wars overseas, against the fed, and against the us public. Higher borrowing costs slow investment, but we’ve had higher rates before and lived through it. There are a few things that make this period of rising rates risky, though. Debt as a share of GDP is high across most of the developed world and rising fast. That means the share of output going to debt service is high relative to earlier periods, and rising fast. And our demographics are trending towardess revenue and more outlays. Beyond the difficulties of highr borrowing costs, transition away from low borrowing is difficult. Decisions made in the past have to be rethought in light of new conditions. Every debt that’s rolled over raises interest cost for governments, firms and households. The transition happens faster in the financial side than in the real economy, and then financial shocks and resultant contagion bleed abruptly into the real economy. Transition to higher borrowing costs is new for most people. The 10-year Treasury rate peaked in the Summer of 1981, and trended downward until Autumn of 2011, a 30-year decline, and then held relatively steady for nearly a decade. That’s 40 years without any real experience with a rising trend in borrowing costs. Most of what the current crew on Wall Street and in C suites know isn’t adequate to the situation. The best they can do is read about it in books and do computer simulations. Now, here’s an odd thing. The private sector has found a way to deal with some part of this problem; higher selling prices pay for higher input costs. Borrowing costs are a serious problem, but as of the latest quarterly National Income report, profits as a share of national income are doing quite well, and that’s because operating margins rose along with inflation. The government has chosen to shed its insulation against inflation. By inflation-adjusting tax brackets, the government pays higher input prices, but doesn’t pass them along to consumers of government services. Add in a periodic lowering of tax rates and of tax enforcement, and you see how criminally stupid our tax system has become. It has never been the case that “Gubmint ought to run lack a bidniss”, as so many of our politicians said in olden days, but in this in this one thing, they should have tried. Income ought to match expenses, more or less. Want to carry debt? Probably a good idea, within reason. Carry debt approaching the level of annual economic output? Not a good idea, and made worse by a revenue system that can’t keep up with inflation, the cost of warfare, or long-standing commitments to the public. Shouldn’t Bessent be buying long Treasuries? I understand the announcement said the purchases would be meant to increase “liquidity” (which means ten different things), but we all know that’s just to keep up appearances. Bessent was going through the motions of “doing something” about rising interest rates. Well, if at first you don’t succeed, try, try again. Seriously, if the “king of debt” told Bessent to do something to bring down rates when tens were paying 4.7%, what’s he going to tell Bessent to do at 4.8%? Can we imagine Kevin Hassett saying 4.7% is low noting this interest rate as 5.9% in September 1999 when he published his prediction that the DOW would hit 36000 in a couple of years. Eh Kevin – how did your forecast work out? pushing for a nearly 1% increase in rates over a 6 month time period. can’t be good for the economy, no matter what trump claims. mortgage relief is now done. trump needs to be concerned the economy will tip into a recession before the November election. it is a real possibility now that rates have continued to climb this year. and if the fed raises rates before the election, it will occur. trump will be placing enourmous pressure on the fed to hold rates steady or cut. he can talk his way through inflation in November, but he knows a recession will be killer. he created this problem with his incessant wars overseas, against the fed, and against the us public. Higher borrowing costs slow investment, but we’ve had higher rates before and lived through it. There are a few things that make this period of rising rates risky, though. Debt as a share of GDP is high across most of the developed world and rising fast. That means the share of output going to debt service is high relative to earlier periods, and rising fast. And our demographics are trending towardess revenue and more outlays. Beyond the difficulties of highr borrowing costs, transition away from low borrowing is difficult. Decisions made in the past have to be rethought in light of new conditions. Every debt that’s rolled over raises interest cost for governments, firms and households. The transition happens faster in the financial side than in the real economy, and then financial shocks and resultant contagion bleed abruptly into the real economy. Transition to higher borrowing costs is new for most people. The 10-year Treasury rate peaked in the Summer of 1981, and trended downward until Autumn of 2011, a 30-year decline, and then held relatively steady for nearly a decade. That’s 40 years without any real experience with a rising trend in borrowing costs. Most of what the current crew on Wall Street and in C suites know isn’t adequate to the situation. The best they can do is read about it in books and do computer simulations. Now, here’s an odd thing. The private sector has found a way to deal with some part of this problem; higher selling prices pay for higher input costs. Borrowing costs are a serious problem, but as of the latest quarterly National Income report, profits as a share of national income are doing quite well, and that’s because operating margins rose along with inflation. The government has chosen to shed its insulation against inflation. By inflation-adjusting tax brackets, the government pays higher input prices, but doesn’t pass them along to consumers of government services. Add in a periodic lowering of tax rates and of tax enforcement, and you see how criminally stupid our tax system has become. It has never been the case that “Gubmint ought to run lack a bidniss”, as so many of our politicians said in olden days, but in this in this one thing, they should have tried. Income ought to match expenses, more or less. Want to carry debt? Probably a good idea, within reason. Carry debt approaching the level of annual economic output? Not a good idea, and made worse by a revenue system that can’t keep up with inflation, the cost of warfare, or long-standing commitments to the public. Shouldn’t Bessent be buying long Treasuries? I understand the announcement said the purchases would be meant to increase “liquidity” (which means ten different things), but we all know that’s just to keep up appearances. Bessent was going through the motions of “doing something” about rising interest rates. Well, if at first you don’t succeed, try, try again. Seriously, if the “king of debt” told Bessent to do something to bring down rates when tens were paying 4.7%, what’s he going to tell Bessent to do at 4.8%? Can we imagine Kevin Hassett saying 4.7% is low noting this interest rate as 5.9% in September 1999 when he published his prediction that the DOW would hit 36000 in a couple of years. Eh Kevin – how did your forecast work out?