Even Inflation Can't Boost Bond Yields

After breaking above 4% at the beginning of the month, the first time in 9 months, the 10-year interest rate has quickly moved to the other extreme. Even this morning's Producer Price Index (PPI) numbers, an indicator of inflation at the wholesale level, came in higher than expected. Food prices rose 2.6% from last month, the largest increase in 26 years! Yet interest rates continued to fall.

It seems clear that interest rates must rise soon, especially if what the stock market is telling us is true. Business is booming! The recession is over! Banks are earning billions of dollars now every three months! One would think that such incredible results would spur interest rates even higher. Imagine the blessing to the banks and other institutions that are able to borrow are virtually 0% interest and participate in the massive market moves! Seems as if it is just another government give-away.

Could it be that the world is still a messy place economically and there is no safe place to put your money? Or is it just the normal gyrations of the markets? Still, as the economy supposedly booms and the Federal Reserve continues to keep interest rates at a minimum, there is sure to be some bubble popping down the line. WHen interest rates finally do rise, all will be running for the door to get out of their safe plays! Will the economy be able to withstand another bursting financial bubble?