The music in the game of musical chairs can only go on for so long. When the music stops, $hit hits the fan. We may be seeing that today with yields jumping dramatically higher. The 10 year yield is trading at 2.12, +0.10 (+5.17%). This is the highest in over a year and could literally handcuff the Federal Reserve and their massive printing of money campaign.
When interest rates rise like today, borrowing money gets much more expensive. Cheap money is the main reason the Federal Reserve has been able to print so much with so little short term consequences. In addition, this feeble economic recovery is based on cheap money. That is why housing is doing so well right now. Any uptick in interest rates will hurt home prices and sales dramatically.
When interest rates rise, the Federal Reserve will have no option but to curtail their quantitative easing policy. Higher interest rates will make the economy struggle again. Tick tock, tick tock.
The Federal Reserve may not have a choice in stopping their printing presses if this continues. When time is up, time is up.
Related: ProShares UltraShort 20+ Year Trea (ETF) (NYSEARCA:TBT), iShares Barclays 20+ Yr Treas.Bond (ETF) (NYSEARCA:TLT).
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Chief Market Strategist