March 7, 2006 – The yield on the 10-year Treasury note rose to its highest level since June 2004 — a sign that a renascent global economy could bring higher interest rates on everything from U.S. home loans to corporate bonds around the world. Strong growth tends to bring higher inflation, which pushes up interest rates. Some economists and investors believe a movement toward much higher U.S. interest rates could sow the seeds of its own reversal. That is partially because U.S. consumers are heavily indebted. Household mortgage debt rose to more than $8 trillion in 2005, from less than $5 trillion at the end of 2000. Some economists worry if the cost of servicing mortgage debt rises too much, it could slow the economy and bring interest rates down again…”If you keep raising the yield on the 10-year, that will keep taking the steam out of the housing market, and that right there will slow you down,” says Matthew Smith, portfolio manager at Smith Affiliated Capital Corp., a fixed-income asset manager in New York.
Interest Rates Keep Climbing [Wall Street Journal]