Risk on and US interest rates

US Long Bond, price declines since January 1st 2012; lower chart shows price of long bond from 1990 to 2012

Seems like lots of money is embracing risk, with the S&P 500 very close to a record high and The VIX all but collapsing.

What does this mean for US interest rates? The chart above shows the year to date prices of an index tracking the US 30 Year Bond (aka “long bond”); YTD its price has declined by almost 6%, with the yield rising from 2.98% on January 1st 2012 to 3.48% with yesterdays close. Interest rates are surging on the long end of the yield curve. The lower chart shows bond prices since 1990; clearly there has been a trend up over the period of time. Interest rates have been falling, in other words.

Why should we care about this? Consumer interest rates such as mortgages or credit cards are tied to longer term interest rates. They seem to be moving higher. What will the impact of higher interest rates be on the US economy?

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