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Interest Rates: How This 1000% Increase Will Overwhelm… Everything?

2-Year U.S. bond: Look at this dramatic rise in yield in just six months

by Bob Stokes
Updated: March 28, 2022

The era of rock-bottom interest rates (or bond yields) appears to be coming to an end and the consequences will be excruciating for many.

Remember, the world is awash in outstanding corporate, student, government and personal debt.

The ability to service that debt will be seriously hindered by rising interest rates.

At this juncture, let's look at one measure of how much rates (or bond yields) have already risen. This is a chart of the yield on the U.S. 2-Year bond:

chart-full

As you can see, in just the last six months, two-year interest rates in the U.S. have risen from .2% to more than 2%. That's a TENFOLD increase.

Here's what that means: Suppose a company must borrow money to keep the business operating -- let's say a billion dollars. Six months ago, that debt would cost $2 million to service. Now -- it costs $20 million a year to maintain. As a colleague put it, "that's a lot of snacks in the breakroom."

Also imagine all the public debt at every level of government. That debt must also be serviced. Of course, it's the beleaguered taxpayer who will be on the hook. The average interest rate paid on the national debt in 2021 was approximately 1.5%. That's a very low percentage historically, yet it amounted to $562 billion. Imagine if rates rise significantly from here!

The headline of a Jan. 25 article in The Hill asks:

Can our nation afford higher interest rates with the current national debt?

That national debt now exceeds $30 trillion.

The silver lining around this cloud is that the financially conservative who put their money into savings accounts will finally have something to smile about.

The question is: How high will interest rates or bond yields rise?

Elliott wave analysis of the bond market offers a big clue. You might be surprised.

Read our flagship investor package for insights.

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