James Hamilton on the Rise in Interest Rates

He writes,

The yield on 10-year U.S. Treasuries has jumped 50 basis points since the start of May, leading some to speculate that the market is already starting to price in anticipation of an end to the Fed’s bond-buying program. There may be some truth to that, but it’s only part of the story.

…It’s worth emphasizing that the recent rise in interest rates has been a global phenomenon, not just something seen in the United States.

It would be nice if you could attribute the rise in interest rates to a rise in expected growth in nominal GDP. However, my portfolio, which should benefit from an increase in expected inflation, instead was hurt by the rise in rates. I infer that there has been an increase in the expected real rate of interest. It’s not clear where that is coming from, other than the fact that real rates cannot stay absurdly low forever.

Of course, the rise in real rates could indicate that investors have become optimists like Tyler Cowen.

1 thought on “James Hamilton on the Rise in Interest Rates

  1. The price of “security” of principal has begun to drop.

    Why else would funds have been flowing into the U S 10s at previous rates; other than for “safety?”

    The “safety” of gold is dropping in “price.”

    Think about it!

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