I think the extreme burst of pessimism last week made recent Treasury yields too low, and now we’re seeing a snap back.
In the longer run, all the private debt that people don’t want to take responsibility for repaying is being converted into public debt. Supply of Treasuries will exceed demand at low rates, and rates will rise.
Be careful, though, because a rise in rates will be opposed by govt, because borrowers don’t want to pay high rates, and more voters see themselves as borrowers than as savers. So we may see a capping of Treasury rates. (After all the new govt intervention we’ve seen in the last year, don’t be surprised at this.) At that point, the dollar will drop. I think the short term chain reaction will stop there, although it’s conceiveable currency controls and “official” dollar exchange rates could be imposed. I doubt things will get that extreme.
In the longer term, the drop in the dollar and very high public spending will create inflation. People will be encouraged to get into fixed rate mortgages before that. When most are in fixed rate mortgages, inflation will be allowed to rise, and all long term fixed interest debt will be thereby devalued. Long treasury rates (including the 10-T) will then rise too.
After the debt is sufficiently devalued, inflation will be extinguished, and the various interest rate and other controls will be pulled back.
Were you looking more for a prediction of 10T 6 months from now, SDR?
