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Interest-rate spike seems to be flattening — but the move up isn’t over

President-elect Trump has one asset which might break all of the rules for the better: action
  • We may get a pause at these levels, even improve a bit more, but the overall move up is not over.
  • All economies have speed limits. Push tax cuts or spending, and any excess growth just adds to inflation. To raise the speed limit, raise productivity and/or immigration.

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The interest-rate fever has broken for the moment. The 10-year T-note touched a two-year high yesterday at 2.45 percent, mortgages 4.25 percent. Both improved a bit today despite news which should have pushed them higher: good November jobs, ISM (Institute of Supply Management) manufacturing index to an 18-month high, and an improbable OPEC deal and oil $50+. We may get a pause at these levels, even improve a bit more, but the overall move up is not over. We might be rescued by a new mess in Europe or China or Japan, but there is no predicting or waiting for those. Why the spike? Why did the bond market blow up on the day after the election? It’s possible to argue (weakly) that the move was already underway and the election triggered the next step. But, a straight-line 10-year run from 1.85 percent to 2.45 percent...? That’s the election. And the Fed. Embedded in this bond wreck is a sudden repricing of the Fed’s intentions. Again, it’s possible to argue (weakly) tha...