10-Year Treasury Rate

Rising interest rates raised eyebrows last week as the 10-year Treasury yield rose nearly one quarter of a percentage point to 3.91 percent on Thursday, its highest level since June 10th, before falling back slightly to 3.85 percent on Friday. The increase was due to tepid demand at two government bond auctions, which suggested that bond investors will eventually grow tired of the low yields offered by U.S. government debt. Analysts seem to be divided on whether rates will fall back due to the excess capacity in the labor market, housing, factories and commercial real estate or whether rates will continue to increase as private demand for credit recovers and bond investors demand higher yields. Higher interest rates are to be expected at some point as the economy recovers and the Federal Reserve begins to drain the excess liquidity that it provided when credit markets seized up in late 2008 and through much of 2009. But if rates rise prematurely, it could provide an additional headwind for the housing market, which continues to struggle. The broader economy is at a delicate point in the recovery, the hope being that the private sector can continue the momentum that was started last year by government spending and Federal Reserve credit facilities. Higher interest rates could disrupt that momentum.

Source: Federal Reserve, Grubb & Ellis