HIGHER RATES SIGNAL OPTIMISM BUT MAY HURT HOUSING MARKET

Even as the labor market struggles, there are signs that other economic measures are turning more positive. Bond yields are rising, an indication that traders expect faster growth and higher prices once mass inoculations take hold and the coronavirus recedes.

Yields on the benchmark 10-year Treasury note have jumped by 20 basis points to 1.10 percent over the last two months, breaking the 1 percent threshold Jan. 6. Rates remain extremely low by historical standards, but a continuation in the surge could threaten one of the leading bright spots in the economy — the housing market.

Rock-bottom interest rates have prompted a surge in home buying and refinancing, as borrowers take advantage of the Federal Reserve’s move to lower rates after the coronavirus struck in March.

Low rates have also buoyed the stock market, as yield-hungry investors turned to equities in search of faster growth. An upturn in interest rates — reflecting lower bond prices as other investments become more attractive — would almost certainly undermine the momentum that has propelled major market indexes to record highs.

So far, economists play down the likelihood of a surge in rates. But all eyes are nevertheless on yields, said Carl Tannenbaum, chief economist at Northern Trust in Chicago.

“It’s the number one question I get from clients,” Tannenbaum said. “I know there are folks out there that think the 10-year yield is poised to become unmoored and shoot up to 1.5 or 2 percent. But I find that highly unlikely.”