5-Year Treasuries vs. 10-Year Treasuries

Click to enlarge.

The herd sure loves the current 1.37% 5-year treasury compared to the 2.75% 10-year treasury. Good luck on that one.

Perhaps the herd is right though. Perhaps interest rates will be north of 4% on the 10-year in 5 years as the economy continues to "recover". We can all hope and dream. Right? Okay, maybe not all. The Japanese would clearly be harder to convince. They've had more time to watch what ZIRP can do to an economy over the long-term. Sigh.

FRB: Why are interest rates being kept at a low level?

Low interest rates help households and businesses finance new spending and help support the prices of many other assets, such as stocks and houses.

Most Americans love higher shelter costs. It's a fact. And let's not forget about higher priced tuition. Who doesn't love that? The more financing the better! Here's the best part. These low interest rates have not boosted the price of gasoline. It's just a coincidence that gasoline prices have tripled over the last decade or so. Can't hold the Fed responsible for that. They have no control over it at all.

February 29, 2012
Bernanke: The Fed 'Can't Do Much About The Price Of Gas'

In Congressional testimony, Fed Chairman Ben Bernanke told legislators the Fed “can’t do much about the price of gas,” after lashing out at those that criticize him for “hurting” the dollar.

Let me summarize.

Good asset prices rising: You can thank the Fed!
Bad asset prices rising: You can't blame the Fed!

Good asset prices falling: You can't blame the Fed!
Bad asset prices falling: You can thank the Fed!

The funny thing is that gasoline prices stopped going up. It's almost like the global economy is too weak to support high priced gasoline. Go figure.

So how exactly is the Fed going to generate consumer price inflation going forward if gasoline prices can't rise further and WalMart sells 32" flat screen televisions for $98? It's a puzzling conundrum of an enigma wrapped up in a mystery.

This is not investment advice.

Source Data:
St. Louis Fed: Custom Chart
U.S. Treasury: Daily Yield Curve