Warren BuffettPlenty of questions remain about the strength of the economic recovery even as investor optimism soars. Extremely upbeat data -- for example, like the Wednesday ADP private-sector jobs report -- need to be taken with at least a grain of salt.

But investors should nonetheless pay attention to the spate of highly influential pros who seem to agree on at least one point: Interest rates should be heading up next year. And that's likely to have an impact across financial markets -- particularly on those so-called safe haven investments, U.S. government bonds with long maturities and gold.

Who are some of the big-name investors who now seem to be anticipating higher interest rates? Warren Buffett, for one. His Berkshire Hathway (BRK.A) sold $1.5 billion in new, mostly fixed-rate debt in order to retire floating-rate notes this week.

Characteristic Good Timing

Moves to lock in interest rates by investors like Buffett (pictured) who are known for their consistent savvy should be watched closely. Recall that investment bank Goldman Sachs (GS) was able to take advantage of overly generous bond markets at the end of October when it issued $1.25 billion worth of bonds with a staggering 50-year maturity at a yield of just 6.125%.

Goldman's move seems to have been characteristically well-timed, with the yield on the benchmark 10-year Treasury bond -- which moves in the opposite direction as the price -- shooting up sharply starting at the beginning of November.

Now, Goldman forecasts 10-year yields climbing substantially to 3.75% by the year-end – well ahead of the 3.52% predicted by a Bloomberg analyst survey. Goldman sees the yield reaching 4.25% at the close of 2012.

A Higher Dollar and Lower Gold?

Other pros see even sharper rises ahead. Veteran investor Byron Wien of investment powerhouse Blackstone (BX) predicts in his list of potential surprises for 2011that 10-year yields could approach 5%.

The prospect of sharply rising yields would have broad consequences. The dollar could rally further as currency traders anticipate interest rate differentials with the euro. Even as the U.S. recovery gains steam, the greenback's main currency rival continues to struggle with banking sector issues.

A rising dollar amid growing optimism could hit commodity prices, especially gold. In fact, the precious metal saw a sharp sell-off this week and has traded down for the past three days amid better-than-expected economic reports.

"If the Optimists Are Right. . ."

The impact for stocks remains less clear. While rising rates are usually a headwind, they're still low by historical standards. And a deflationary panic as opposed to inflation was the markets' most recent dominating fear.

Much will depend on whether rising rates are driven by anticipation of U.S. growth or concern's about the country's credit quality, as some commentators have attributed recent upticks to.

"If the optimists are right, and if any rise in U.S. bond yields continued because of a return to normality, then in fact, the dollar might rise, corporate bond spreads certainly tighten, and the stock market rally, possibly significantly," Jim O'Neill, the chairman of Goldman Sachs Asset Management wrote in December.

So far, the evidence supports the bulls. Despite all the talk of creditors bailing on U.S. debt, the cost of credit default swaps to insure U.S. debt have fallen meaningfully during the last months of 2010 even as yields rose.

It can be tough for investors to see the big picture through Wall Street's daily lurches and a frenetic financial media. Rising interest rates amid an economic recovery, though, is one of the few things that a growing number of investors seem to agree on.

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January 08 2011 at 8:59 PM Report abuse -1 rate up rate down Reply

Interest rates have to rise. With the most recent pile of money fed to the economy from the TAX deal, hidden infaltion will become clearer. Energy prices on the rise. Heath insurance premiums increasing and talk of large increases in food prices. Whwn inflation rears its ugly head, interest rates have to rise.

Another point: Package volumes down; less product for same price. HIDDEN INFLATION! Businesses up profits; govt claims low inflation. Great con job on the American people.

January 08 2011 at 11:56 AM Report abuse -1 rate up rate down Reply
Stop Darrell Issa

Darrell Issa is the most dangerous man in America

January 08 2011 at 11:54 AM Report abuse -2 rate up rate down Reply
Stop Darrell Issa

what is your agenda barrythebleep? Which right wing internet death squad do u work for

January 08 2011 at 11:54 AM Report abuse rate up rate down Reply
Stop Darrell Issa


January 08 2011 at 11:53 AM Report abuse rate up rate down Reply
Donald G

Ok, try it again. If you are for or against healtcare reform this package is not the answer

January 08 2011 at 10:58 AM Report abuse +3 rate up rate down Reply
Donald G

Why do my post keep disappearing?

January 08 2011 at 10:56 AM Report abuse +2 rate up rate down Reply

All you Right Wingers have all this time to keep talking about the same things day after day month after month. Obama this Obama that. He's a socialist he's this he that. Obama care this Obama care that. Whats wrong with you people don't you know you are paying for the people without health insurance? Higher co-pays deductables get a clue. Just think how high car insurance would be without a law that says you must carry auto insurance.

January 08 2011 at 10:36 AM Report abuse -1 rate up rate down Reply

GS...just good timing...yeah right

January 08 2011 at 8:52 AM Report abuse rate up rate down Reply

more BS brought to you by the left

January 08 2011 at 7:44 AM Report abuse +4 rate up rate down Reply
1 reply to ssyankeeclipper's comment

Talk about BS, wait until those idiots from the Right in Congress start the BS.

January 08 2011 at 9:07 AM Report abuse -1 rate up rate down Reply