10-Year Treasury Yield

10-year Treasury Yield
Sunday, May 31st, 2009

It is interesting that there has been relatively little commentary on the increase of the 10-year Treasury yield.

In my opinion the rise is significant in many ways. Perhaps chief among them is the fact that the yield has risen sharply (to a current 3.46%) despite a large-scale intervention designed to bring yields lower. This divergence is significant because it raises the question as to whether we are witnessing a failed intervention. While it is probably too early to classify it as such (due to, among other things, the fact that there is likely to be more purchases) perhaps the word “errant” might be more appropriate at this juncture. At any rate, the increase in yields bears close watching.

Upon originally hearing of the intervention plans to purchase Treasury and Mortgage Backed Securities in order to bring rates down, I thought the plan was flawed in many fashions, both theoretical and practical.

For those unaware, I have previously written an article that discusses the hidden risks and unintended consequences of interventions; it can be found here:

http://sites.google.com/site/prosperitybypen/articles-1/intervention-s-potential-blindspots