The yield on the 10-year T-note is about to hurdle above 3%. Imagine what is going to happen to yields when the Federal Reserve begins its so-called tapering in January — buying $10 billion less government debt each month. The demand for that debt will only appear at higher yields.
Investors really do need much higher yields to offset all the risks that come with holding dollar-denominated debt. The US economy, over the last decade, has taken a lot of abuse with market interventions and various types of central planning. But if there is one thing the economy cannot handle, it is higher interest rates.
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