Long-Term Interest Rates Set to Rise

One of my proprietary indicators has just given a sell signal for the 10-Year Treasury Note. I predict that the 10-Year Yield will rise from the current 4.69% to at least 5.35% by June 2007.

It is apparent that 15-Year and 30-Year Mortgage Rates are also rising.

Short-term interest rates are holding steady for now, resulting in a new trend toward flattening of the inverted yield curve which has been with us since July 2006.

These subtle changes have far-reaching implications for the economy and for the stock market, especially for banks and utilities and the REIT and housing sectors.


4 Responses to “Long-Term Interest Rates Set to Rise”

  1. Dan... Says:

    I would be interested in your thoughts on the “far-reaching implications for the economy and for the stock market,…”?

  2. Alligator Investor Says:

    If the current scenario continues (the Federal Reserve leaves short rates unchanged while long rates rise significantly), it will become a little easier for banks to make money. But housing would suffer, and stocks like utilities and REITs, which compete with bonds as income investments, will have to decline.

    Of course, everyone is likely to benefit if the Fed ultimately cuts short rates, and everyone will suffer if they raise them, especially if the economy weakens further.

    The scariest possibility involves continued inversion of the yield curve, with both short and long rates rising – stagflation.

  3. Patrick Wallace Says:

    The chart you pointed us to for mortgage rates is not current. It presents data from last year (if the legend is to be believed). Of more relevance to predictions would be mortgage rates actually happening now. For instance, review the chart at http://mortgage-x.com/general/average_rates.asp and you won’t see support for a confident assertion that rates are rising. They aren’t.
    As for your prediction on the 10-yr, it implies a catastrophic next six months in the market. Buckle up for a 12+% market-wide drop in average PE. I pray to God that you are totally, absolutely dead wrong.

  4. Alligator Investor Says:

    Patrick, thank you for pointing out that the mortgage rate chart I linked to was not current! I like the one you provided much better, and I will use it in the future.

    However, that chart is updated only through Dec. 8, 2006. The rise in interest rates that I am talking about has gotten underway since then. You can see it better on this six month chart.

    My prediction on the 10-Year Treasury is not necessarily catastrophic, but it does imply at least a temporary pause in the equity bull market, which I am forecasting for the first quarter of 2007.

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