Are interest rates headed higher?

Goldman Sachs sees rates rising 'significantly' in the next few years. How much is 'significantly?' Enough until it hurts.

By Charley Blaine Apr 11, 2013 9:37PM
© Whisson, Jordan, CorbisMark these numbers. The 10-year Treasury yield finished at 1.791%. The rate on a 30-year mortgage is about 3.6%. The rate on a 48-month auto loan is around 2.7%.

Why? Because they won't be around for too much longer. Goldman Sachs (GS) analysts think the era of ultra-low mortgage rates is very close to over.

In a paper that Barron's looked at, analysts at the investment bank believe "U.S. rates are likely to rise significantly" over the next several years.

That could mean mortgages are headed to 6%, maybe higher over time. But the operating phrase is "over time." 

The Federal Reserve's campaign of buying Treasury and mortgage bonds will contain rates more or less at current levels for the short term. But the demand for U.S. Treasuries may be declining because investors aren't scared to death the world is about to fall apart. (My words, not Goldman's.) Also keeping rates low, campaigns to ensure low rates by the Bank of Japan, the Bank of England and the European Central Bank. But these campaigns will run their course, Goldman thinks, and when done, rates are probably headed back to more normal levels.

That would likely mean 4% to 5% for the 10-year yield, which was at 5.1% in June 2007 when the subprime-mortgage crisis began to batter global money markets.

It was around 15% in 1981 when the Fed, under then-Chairman Paul Volcker, was campaigning to wring inflation pressures out of the economy.

If the 10-year hit 5%, the rate on a 30-year mortgage might rise to 6.5%. That would boost monthly principal and interest rate payments on a $200,000 loan to $1,263 from $908. One would guess that would prevent many buyers from buying homes and slam the nascent housing recovery fairly hard.

And that would hurt the Dow Jones industrials ($INDU), the Standard & Poor's 500 Index ($INX) and the Nasdaq Composite Index ($COMPX).

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7Comments
Apr 11, 2013 11:15PM
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I hope not...imagine a 6% rate on Obama's 17 trillion in debt...   Thats 1.02 trillion...  taht would consume more than 26% of the total spending and be 280 billion more than the ENTIRE DEFENSE BUDGET.   We will never recover from that...

 

We have to PRINT our way out of this mess or Slash government spending by 35% or default...

 

Obamanomics may force us to do all 3...  Seizing retirement savings, bank accounts and other assests to continue to fund the 47% leech class is not the answer...

 

Do you really believe we can Tax and Print our way to prosperity?  Borrow and Spend our way out of debt?   if you do, you are a democrat.  A true believe in hopium and change... 

Apr 12, 2013 4:52AM
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This is not Obamas debt idiots ... Its two unpaid for wars for over 12 yrs .. Way before Obama you fools. Blame congress . Have any of you idiots in America ever read your own constitution ? LMFAO
Apr 12, 2013 11:16AM
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Interest rates have been forced to artificial lows in order to stabilize the economy in the past 4 plus years. So interest rates will go up when the Feds eases off support. 

How high the rates will go and when is anyone's guess.

No surprise here except the amount of interest expressed by Goldman. Not sure their crystal ball is better than anyone else.
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