When the Fed announced QE2, they expected interest rates would fall. At first, everything went as expected. Now, those rates have started to rise. Ten-year Treasury bonds now pay 3.36%, which is a six-month high.
One reason for interest rates to rise is that the Fed is causing it intentionally, which is not the case. Another reason is that the economy is improving, which makes it more expensive to sell bonds, and there has certainly been a great deal of good economic news recently. Yet another reason for rates to rise is that bondbuyers see inflation ahead, which I think is more likely.
In other ways, the rising interest rates may be sending a bullish signal or a bearish signal to the market.
Because long-term rates are moving up faster than short-term rates, I suspect the market will continue to rise slowly for some extended period, before encountering the obvious signs of inflation.
