The Fed is playing with the idea of dropping rates on longer duration treasuries to spark riskier investment practices such as lifting the stock market. As you can see from the 3-D treasury graph over time below, Yields have been flattened towards zero across the board with risk of the longer duration bonds falling more every time that Bernanke opens his mouth. Stock market bulls are constructing their portfolios to reap the benefits of money flooding out of the treasury market into stocks. This is demonstrated by the outperformance of blue chip stocks.
Although I am bullish on interest rates on the long term, I believe that the Fed will be forced to step in and buy long duration bonds before the economy bounces back to full health.
David Cornes holds a degree in economics from the University of Montana.
