In a debt burdened economy like that of the United States, interest rates are the lifeblood. In a previous article, I suggested selling call options on TLT (long treasury ETF) under the theory that interest rates probably could not go much lower and it has turned out to be a great trade. Now the 30 year government bond is hitting the 4.6% level, only 20 bps or .2% away from a 2 year high of 4.8%.
Will interest rates spike above the barrier?
The yield curve is currently at its steepest level in over 25 years. The question becomes whether 20+ year rates are going to continue to rise as an economic recovery gains footing. It is my belief that a 2.2% revised GDP with an estimated 2.5% boost from cash for clunkers and housing incentives shows that this recovery is feeble. With that being the case, I cannot see a strong push higher in interest rates. We also need to hope that interest rates do not continue to rise, because it can put a screeching halt to any foreseen housing recovery and make the terming out of US government debt all the more difficult. So we can only hope that interest rates remain range bound.
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