The interest rate on a US 10-Year Treasury bond is now up to 2.71%. That's close to its two-year highs but, as recently as February 2011, rates were 100 basis points higher.
What does that mean for the average person or business?
Well, for one, it means their own borrowing costs are low compared to where a few years ago, but they're higher than they were last year.
If it costs more for people and businesses to borrow money, they likelihood of them doing so goes down. That, in turn means spending will go down nationwide compared to what it would be if borrowing costs were cheaper.
That has been the theory behind the Federal Reserve Bank's "quantitative easing" program. For the past couple of years, the Fed has been buying US Treasury and mortgage bonds, most recently at a rate of $85 billion each month. That pushes bond prices up and thus lowers interest rates since interest rates move inversely with bond prices.
With Fed now expected to taper quantitative easing as early as next month, the market may not have such a large buyer around to bid up bond prices. Bonds have been selling off this summer and that's why we're getting a spike in interest rates.
So, despite good news out of Europe, will the higher cost of borrowing dampen our economy and take stocks down with it?
We ask Steve Cortes, founder of Veracruz TJM, to look at the market's fundamentals. And, we have Talking Numbers contributor Richard Ross, Global Technical Strategist at Auerbach Grayson, to look at the charts on the US 10-Year Treasury bond yields to see where they might be headed next.
To see Cortes and Ross analyze the markets and interest rates, watch the video above.
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