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U.S. long-term interest rates hit a high Wednesday with the yield on 10-year notes at 4%. Yields jumped 4 basis points, the biggest jump since 2003. This was up from 3.6% just one week ago. Mortgage lenders use the benchmark 10-year note to price their mortgage rates.
Four percent is the magic number for traders. When the yield reached 4%, traders moved in to buy. The higher rate also took its toll on the stock market, with the Dow down 24.04 to 8739.02.
The next test is today when the Treasury auctions $11 billion of 30-year bonds. Last month, the 30-year auction went badly due to our increasing budget deficit.
Sentiment on Wednesday was also muted by the Federal Reserve's Beige Book that stated the health of the economy "remained weak or deteriorated further." Steven Ricchiuto, chief economist at Mizulo Securities, told the Financial Times the Beige Book "paints a picture of an economy still in the process of finding a bottom and not having hit one." According to the Fed, credit remains tight, the labor market continues to suffer from flat to falling wages and commercial property rates are rising.
So, then, we should keep an eye on the upcoming Treasury auctions for any hint the large repeated dollar offerings are putting increased pressure on the market. The Treasury has a monumental task of trying to finance the huge budget deficits carried over from the Bush administration plus the new spending from the Obama stimulus packages.
Do you believe that the Treasury and the Fed can pull off financing all of our huge debt?
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