Transcripts

Treasury Yields Continue To Rise

SUSIE GHARIB: The major stock market averages once again posted weekly gains, but the bond market is what traders are talking about these days. Prices rallied on Treasuries and yields came down, thanks to successful auctions this week. That's important news for consumers, because the rates for mortgages and other loans are tied to those Treasury yields. As Scott Gurvey reports, the fluctuations in rates has been frustrating for many savers and spenders.

SCOTT GURVEY, NIGHTLY BUSINESS REPORT CORRESPONDENT: If you've been shopping for an auto loan or a mortgage for a new home purchase or thinking about refinancing one you already have, you know interest rates are well above the lows set earlier this year. Those rates are certainly distressing if you are in the market for a loan. But as Dominic Konstam of Credit Suisse reminds us, earlier this year, we were worried about rates falling too far.

DOMINIC KONSTAM, GLOBAL HEAD, INTEREST RATE STRATEGY, CREDIT SUISSE: The rise in inflation expectations is definitely about going back to normal. Inflation expectations, typically, for 10 years out are between 2, 2 1/4 percent, and that's exactly where the TIPS market -- which prices for inflation -- break even rates are, so yes, that's definitely normalcy.

GURVEY: Mortgages and other consumer loans are generally tied to Treasury bond yields and those are the yields which have risen sharply. Zane Brown of Lord Abbett says other segments of the bond market may be more attractive for investors.

ZANE BROWN, FIXED INCOME STRATEGIST, LORD ABBETT: There are much broader bond markets that are still doing quite well. That would be the corporate bond market, the high yield bond market. They continue to actually improve in price and yields continue to come down ever so slightly. The same thing is happening in the municipal market.

GURVEY: You don't see many interest rate signs in bank windows today. That's because the rate banks are willing to give us on a savings account or a CD doesn't amount to much. Banks make more money when they borrow short at low rates and loan long at higher rates. That means the Fed has to navigate a fine line, keeping the economy growing without upsetting fragile balance sheets at the nation's banks.

KONSTAM: They need to earn an awful lot of capital over the next year or two and they're going to do that with -- against the backdrop of a complicated monetary policy. So, if you were to worry to kind of too much about inflation right now and put away that -- the gravy train, so to speak, for banks, then you'll be back to where you were, you know, back to where we were in March.

GURVEY: The Fed has signaled it will not step up its buying of mortgages in the near term, allowing the market to determine interest rates. Scott Gurvey, NIGHTLY BUSINESS REPORT, New York.