Making Money Alert
Yields: A Fly in the Equity Ointment
04/07/2010
If you haven’t paid much attention to bond yields lately, I have a news flash for you --long-term Treasury bond yields, i.e., long-term interest rates, are on the move. Look below at the chart of the 30-Year Bond Yield and you can see the breakout in this sector.
I think this trend could be with us for some time, as there is just no way to avoid the mountain of debt that will be issued by the U.S. government in the years to come. Higher interest rates inevitably will lead to higher taxes, and higher taxes could put a serious hurt on corporate profits.
The endgame of this pernicious cycle is that equity prices will come under pressure, and that means hard times for the bulls going forward. Sure, there’s a party raging right now on Wall Street, but if we see more interest-rate creep, it could mean lights out on this rally.