10-Year Rate Edges Toward A Breakout

A 3.11% rate ceiling on the Ten-Year Note that has held for two months looks likely to be challenged in the weeks ahead. A forecast I put out in December, when rates were around 2.34%, caught the May high almost to-the-tick, raising the odds that the peak would prove to be an important one. Now, however, it’s time to prepare for the possibility that yields are headed still higher -- presumably to levels investors will not be able to shrug off as easily as they have a protracted period of Fed tightening and ‘tapering’ of its balance sheet.  The 3.15% target shown may not be quite enough to throttle the economy, but it will bring Ten-Year close to a threshold of around 3.25% where the risk of a small turn of the interest-rate screw could prove fatal — not only to growth, but to the Fed’s goal of ‘normalizing’ rates.

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