One would think that with the Mideast crisis, oil prices skyrocketing and U.S. manufacturing rebounding smartly, the buck would be flying high. But no. Why that's so may lie in international perceptions about where interest rates are heading.
U.S. bond prices fell Wednesday on violence in Libya. An auction of $35 billion in five-year notes met with little demand, while 10-year Treasury prices fell 22 cents per $100 invested. Stocks also declined as a result of the Libyan instability.
The Treasury has to find buyers for trillions of dollars in new bonds needed to fund the federal deficit. It hopes average citizens will pony up and invest in some $337 billion worth. But for a host of reasons, "safe" T-bonds might not be a winning investment for you.
As small investors flee the low returns of Treasury bonds, many have piled into high-yield debt -- also known as junk bonds. Problem is, as one pro puts it: "The trade when you could buy anything and make money ended six months ago." Investors need to be far pickier now.
Washington has been borrowing Social Security's surpluses for decades and issuing IOUs in return. However, the ability to pay those IOUs depends on the Treasury borrowing more money on global bond markets at affordable rates. That's hardly a sure thing.
For investors, fear of losing money in the stock market is finally giving way to the reality that they may actually be losing money in low-yielding investments. So the move back to stocks is underway. But the key is do so safely. Here's some timely advice.
When pros like Warren Buffett and Goldman Sachs start making moves predicated on the expectation of higher rates, investors best take note. The impact of higher rates would be widespread, especially on so-called safe havens like Treasury bonds and gold.
Doomsayers insist the recent rapid rise in yields means the nation's creditors are finally getting fed up with financing U.S. deficits. But a stronger argument says the cause is better-than-expected economic reports that have been piling up recently.
While the U.S. struggled with near-10% unemployment, China grew at that same pace over the past year. But the country faces massive internal problems that leave it in a far more difficult situation than the praise constantly heaped on it implies.
Republican leaders may be worried about the Federal Reserve's second round of quantitative easing, but the stock and credit markets are delighted: They've improved significantly since the plan was announced. But can the rally be solely attributed to QE2?
A rapidly growing list of reports shows a U.S. economic recovery that's far stronger than most had anticipated just months ago. And both deflation and inflation seem less likely to explode. All this is boosting the dollar -- and could soon dim the gold bugs' argument.
U.S. mortgage rates have grown for five straight weeks, in the last week hitting their highest levels in seven months. Ten-year Treasury note yields have been climbing on inflation concerns, driving the higher rates.
Some investment strategists say it's unwise to "fight the Fed." And right now, Chairman Bernanke wants investors to move into riskier assets, particularly stocks. But these strategists also point to pitfalls if investors aren't careful about how they shift assets.
For the 22nd-straight month, the central bank kept its target interest rate at 0% to 0.25%. It made no new asset purchases and no changes to QE2, its $600 billion, eight-month bond-buying program. Housing and hiring are two main areas of concern in a slow-growth economy.