Bailing out of bonds

The yield on the benchmark US Treasury note jumped 19 basis points (0.19%) to 3.73% today, causing the difference between the yield on the two- and ten-year notes to rise to the highest ever.



Everything from concerns about the ability of the US to maintain its triple-A credit rating to the huge supply of debt that must be sold to finance the growing federal deficit to the Fed's eventual pullout from the Treasury market are forcing up yields.

But the jump is presenting the Fed with a big problem. Typically, a widening yield curve - defined as the difference in yields for differing maturities of the same debt instrument - is a sign that better economic times lie ahead.

But rising yields are pushing up mortgage rates at a time when monetary officials want to keep rates low in order to support housing activity. The last thing Bernanke (or any of us) wants to see is his green shoots being singed by the heat of high mortgage rates.

I saw one major institutions offering a 30-year fixed rate at 5.75% today. That may force a few potential buyers off the fence, but it could keep many more on the sidelines.