The long bond yields can rise sharply because of inflation fears
Peter Oberois
Feb. 19, 2008

The bond market is skittish about the Fed and it’s catching up with the curve. The confidence in Fed is shaken. The gold price is scary. The fixed income market is worried about inflation.

The economy faces stagflation. The stagnation has cause anxiety among the Fed officials about the recession. They have cut the rates and provided liquidly out of fear. The liquidity has fueled the inflation. The gold price has gone up and dollar has gone down.

The prospect for the long bond yields is not that great. The more Federal Reserve Chairman Ben S. Bernanke cuts interest rates, the less appealing 10-year Treasuries become to investors. Ten-year note yields rose 12 basis points, or 0.12 percentage point, to 3.77 percent last week. The price of the 3 1/2 percent security due in February 2018 fell 31/32, or $9.69 per $1,000 face amount, to 97 25/32. The yield climbed 6 basis points to 3.83 percent as of 2:03 p.m. today in Tokyo.

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