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Cross-posted on Mishedlo Board.

Long-Term Rates Creep Higher
After Years of Resisting the Fed

Wall Street Journal, April 4, 2006; Page A1

After stubbornly resisting nearly two years of prodding by the Federal Reserve, long-term interest rates are on the rise, a trend that could eventually slow the nation's expansion.

Few economists expect higher long-term interest rates to derail the current expansion. Indeed, interest rates probably would turn lower again if the economy showed serious symptoms of softening. But economists say the latest trend, if sustained, could cool economic growth and weigh on a housing market that already shows signs of slowing after a series of boom years.

Japanese and European economies are looking better than expected, with consumer demand and business confidence growing. That has prompted their central bankers to raise rates, forcing yields in the U.S. higher to compete with improving returns in euros and yen.

The most recent data from the U.S. Treasury hint at a drop in demand for U.S. bonds in favor of securities elsewhere: Foreigners increased their holdings of U.S. Treasury bonds by $4.4 billion in January, compared with an average monthly increase of $28.6 billion in 2005.

What will be the effect on real (post-inflation) interest rates?
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