Yields on US Treasuries are rising rapidly this afternoon but so far it’s not clear its for the “right” reasons. One would hope that investors would feel comfortable moving out of the relative safety of US government paper and put money to work in other areas of the still-frozen credit markets. At the moment, it just looks like fear of supply as the US deficit rises to fund all the new programs. We’d feel a lot better if stocks were higher and gold lower in addition to the higher bond yields.
A steep yield curve can be eyed as a subsidy to the banking system as firms will be able to borrow at 1.5% from the Fed and buy 10 year Treasuries at 3.75%. This is how the Fed reflated the banking system in the early 1990s after a real-estate bust and the savings and loan debacle.
