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How the Bond Markets React The reaction to the job's numbers (disappointing at 5.6% without any real growth) took a big toll on the bond markets. Prices rose on the news which drove yields down. This may also be good news wrapped in bad news.
The 10 year Treasury fell to 3.85% yield, a low not seen since July of last year. This could, theoretically, push mortgage rates lower in the coming weeks. If that happens, the already worrisome debt of U.S. households will increase beyond its dangerously bloated level of 10.4%. The last time we saw this kind of debt expansion, both on a federal level and household level was prior to the recession of the late eighties.
"Crisis" was on the lips of the Fed Chairman on Tuesday when he wondered whether "market forces would diffuse a worrisome buildup in a nation's current account deficit and the net external debt". the net external debt is a reference to the build up of household debt now occupying 42% of the $1.7 trillion total.
Any rise in interest rates or a deflationary dollar would, according to Allan Sinai of the consulting firm, Decision Economic, be just enough of a trigger to repeat the disastrous end of the eighties. As consumers continue to spend, the bad news becomes good news - becomes bad again.
The dollar, which was staging a mini-comeback also fell against the Euro on the dashed hopes that the estimates for job growth were possible.
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