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Cross-posted on Mishedlo Board.

http://online.wsj.com/article/SB114411671665716153.html?mod=home_whats_news_us

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

By MARK WHITEHOUSE and SERENA NG
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?
Wendy
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What will be the effect on real (post-inflation) interest rates?

Idunno, so many factors that play into this. Higher interest rates don't neccisarily = higher inflation. The inverse if often true, if inflation is higher then investors seek a return that matches or exceeds inflation.

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.

Pet peave moment. They are comparing a single data point to a 12 month average and this tells me/us absolutly nothing but looks impressive. Do we have a trend? What is the trailing 12 average compared to the 2005 average?(a far more apples to apples comparison) These two bits of datum would be far more useful.

jack
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"Pet peave moment."

This is WSJ on-line. Like most healine writers, with no analytical skills, every data point is extrapolated to pretended significance. However, as a ingle data point, that foreign buying of Treasuries in January was down is of interest. Whether it is a trend depends on what your defintion of a trend is: in finance reporting, a trend is a single date point. From the point of view of a cold, windy day in April, the 60 degree day a few back, was not a trend.
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