Falling bond prices send yield higher

Bond prices fell following the US Treasury announcement to issue more bonds and more frequently, sending the ten-year note yield above 3%. Even the shorter-term 2-year note yield and the Libor 3-month rate have been trending up. These would have immediate impact on home loan rates. A quick check at the local interest rates – 3-month Sibor still remaining at a low of 0.69% and 3-month SOR at 0.91%, looks like low interest rates are still intact for now. Central banks worldwide continue to suppress interest rates in a bid to stimulate the economy and it remains to be seen how these effort will play out in the face of market forces.

What could be more worrisome is that “traders believe a further rise in long-term yields could compel the Federal Reserve to fulfil its recent statement that it is prepared to purchase longer-term Treasury securities if evolving circumstances indicate that such transactions would be particularly effective in improving conditions in private credit markets”. This is in effect quantitative easing, i.e. printing money, which could lead to inflation in the long run.

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