The markets always win

The Dow Jones industrial average fell almost 175 points Wednesday, erasing most of the previous day's rally as a jump in government bond yields fanned concerns that higher interest rates will sap strength from the economy.

A steep drop in the price of the benchmark 10-year Treasury note pushed its yield up to 3.75 percent from 3.55 percent late Tuesday and to the highest level since November. Bond investors were selling on concerns that the huge amount of debt the government is selling to fund its bailout programs will ultimately keep Treasury prices down.

Along with increasing borrowing costs for the government, rising yields on Treasury debt could hamper an economic recovery since they are used as benchmarks for home mortgages and other kinds of loans. Higher mortgage rates could delay a recovery in the battered housing market.

Bottom line. Since the beginning of the year, the yield on 10-year Treasury bonds soared from close to 2% to just under 4% (click on chart to enlarge). Washington cannot bail out the whole country and convince us we are headed for prosperity. We just cannot become a wealthy country by borrowing. We have to work for it.

Interest rates on government bonds are soaring. And we are just at the beginning of the borrowing process. The markets are letting us know the government interventionist ideas do not make economic sense. Watch interest rates on government bonds. The markets always win.

To find out more about my in depth view of the markets and my strategy just visit our website https://www.peterdag.com/ where you can review The Peter Dag Portfolio. You can also call me at 1-800-833-2782 to discuss your specific money management needs.

I will be happy to speak to your investment group on how the business cycle impacts investment strategies and the choice of asset classes.

George Dagnino, PhD
Editor, since 1977