The 10-Year Treasury Note has crossed back above the 4.00% mark today. According to our data, the last time rates flirted with 4.00% on the 10-year treasury note was on May 14, 2008 when we saw a 3.99% yield.
There were a few times in February when rates went over 3.90% as well, but this is the first time since January 2, 2008 that rates on the 10-year T-Note were above 4.00%. It looks like the low yield on the 10-Year so far in 2008 was 3.29% on March 17. Last summer before the rate cuts started coming into the pipe, the 10-Year T-Note looks like the high yield was 5.32%.
Over the long weekend, we ran a brief piece showing how Fed Fund Futures were essentially factoring in a 100 basis point rise in the overnight Fed Funds rate by the end of Summer in 2009. With inflation running high (as long as you don’t listen to the Labor Department), it doesn’t take a genius to realize that the rate cut cycle is as good as done. Even if the economy weakens further, the FOMC can’t risk taking rates further down right now as the E.U. didn’t match our rate cut cycle which helped further kill the US Dollar.
Combine that and surging commodity and energy costs, and the word of the day is stagflation.
There may be nothing more than a psychological barrier at the actual whole number of 4.00%, but it may be more key than many want to discuss.
*Rates taken from current rolling 10-Year
Jon C. Ogg
May 28, 2008