(Drivebycuriosity) - The interest rates are rallying! "10-year Treasury yield hits highest level since 2007" reports cnbc. That is the interest rate for bonds running 10 years, an important bench mark for the financial markets. The rally doesn`t make any sense to me.
A strong rise of the interest rates would make sense if we would expect an economic boom and anticipate that the growth rate of the GDP would climb from today´s 2% to 3% or more. In this case investors would seek for more loans to finance their business expansion, which would justify higher interest rates.
But there are no signs of an accelerating economic growth. The business unfriendly policy of the Biden administration (more regulation, international trade restrictions, higher taxes, sanctions) does not support more economic growth.
(source )
A rise of interest rates would also be appropriate if we would expect climbing inflation rates. Then higher rates would compensate bond holders for their inflation losses. But we are experiencing a disinflation with falling inflation rates, following the shrinking money supply ( I explained it here ).
It seems that the managers of the leading pension and hedge funds think otherwise. Apparently they are selling bonds as a bet on the return of inflation.
I strongly believe that they will lose.
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