Long-term rates rose last week as healthy economic data undermined ghoulish bond-market hopes for an economic downturn. The 10-year T-note could not hold its pre-Thanksgiving rally to 4.4 percent and is now back above 4.5 percent; that trade eliminated the chance for mortgage decline toward 6 percent. Fixed 30-year deals are now back at the 2005 high, 6.375 percent. Despite these retracements, the "topping" pattern in long-term rates is still in place. The Treasury 2-to-10 spread is still .1 percent or less, and at one point last week the 5-year T-note yield was slightly under Treasury 2s and 3s. That brief and minor "inversion" (a long-term rate under a shorter-term one) is a precursor for a larger and more significant one likely to develop in the next 60 days. The Fed will go to 4.25 percent on Dec. 13, and most observers expect 4.5 percent on Feb. 1 -- if the 10-year stays put, that would mean no spread at all from overnight money to 10 years. The Fed, of course, never wants to be...
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