Rebel Capitalist: Interest Rates are Skyrocketing!! Here’s What You Need to Know

Although the Federal Reserve has been cutting interest rates, the facts are buried beneath the headline. The Fed only sets short-term interest rates for lenders. Investors are still able to bid up or down on various assets such as long-term Treasury bonds.

That’s why yields have risen over the past few months on long-dated assets, even as rates have been cut. And longer-dated yields can have a huge impact on the economy that counteract the decline in short-term rates.

That’s particularly true with the 10-year U.S. Treasury yield, which still pays about 4.4%.

This sticky yield on the 10-year is causing the yield curve to steepen out. The yield curve universion suggests trouble ahead for the economy.

The good news? Investors can still lock in relatively high bond yields, particularly on longer-dated notes.

Longer-term rates may even be able to trend higher, if that reflects strength in the real economy.

Meanwhile, shorter-dated yields should continue to trend lower. Keeping short-term rates lower help smooth out the cost of government borrowing. That’s because most government bonds are short-dated notes and bills running from 30 days to two years.

For stock investors, higher yields essentially compete with stocks, particularly dividend-paying stocks. Investors may want to scale out of stocks, especially after the market’s strong performance over the past two years.

To view the full analysis, click here.