Long-term rates have risen in a straight line since Labor Day, now more than one-half percent. The 10-year T-note, 4.67 percent on Friday, has taken out several technical stops without pause, and 30-year low-fee mortgages are at the doorstep of 6.5 percent. Bonds were hurt by some fairly strong economic data, and by inflation discussions shifting to a how-bad-is-it competition, but the real damage to rates is coming from the Fed. The light has dawned that wherever neutral was before oil hit 60 bucks, it is higher now. Further, the location of neutral is passing into historical curiosity as the Fed will likely have to tighten past neutral, going as far as necessary to intercept inflation pressure...going until the economy visibly slows. The Fed's fingerprints are on the crucial Treasury 2-year-to-10-year spread: it's been steady at a very narrow .2 percent for four months. Long-term rates are rising because the Fed is bulldozing the whole rate structure upward from underneath; if the...
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