Iowa Public Television


Volatile Bond Market Impacts Economy

posted on August 8, 2003

Hello, I'm Mark Pearson.

Economic forecasts issued by the government continue to improve, and yet it's consumer concern over the economy that's driven President Bush's approval rating back to pre-war levels.

Even so, business productivity soared in the second quarter to its best showing since last year. At the same time, new claims for jobless benefits dropped have to a six-month low. And, orders to U.S. factories lodged their biggest gain in three months.

The equities markets like that kind of news. But it's been a different story in the bond market. There, signs of a rekindled economy have put new pressure on investors and borrowers alike.


Volatile Bond Market Impacts Economy

In mid-June, the yield on 10-year Treasury notes was at a 45-year low. Since then, the bond has taken an historic nosedive, pushing yields to a one-year high.

That sort of volatility means increased costs for borrowing money and a potential short-circuit in the consumer-driven economic recovery.

It's also bad news for capital-short industries like agriculture. In many cases, farmers have assumed floating interest rates on loans, which means the upward pressure on yields will make that form of short-term borrowing more expensive.

Down the road, there also will be increased worries about inflation and the possibility the Federal Reserve will boost interest rates. The short-term interest rate futures market already considers that a foregone conclusion for sometime in 2004.


Tags: economy markets news