We’ve been keeping a close eye on US Treasuries lately. That’s because the bond markets are full of useful information about the real state of the economy. For one, they tell us how investors really feel about government wastefulness.

Yesterday, the yield on the 10-year Treasury bond rose sharply to about 3.7%. This is still well below the 5% it hit before the credit crisis. But it is a clear sign that bond investors are concerned about the amount of money the government is borrowing to ‘fix’ the economy.

As yields rise, so do mortgage interest rates. Right now, the Fed is keeping them artificially low by buying Treasuries. But pressure is building on the mortgage rates as oversupply in the Treasuries market pushes yields higher.

And with prime mortgage delinquency rates at 6% (more than double the long-term norm) and a quarter of subprime loans delinquent, the government simply can’t afford for mortgage rates to rise further.
Payout Trader editor Charles Delvalle sent us an email this morning… He says:

Who said the bottom in housing was near? A record surge in 10-year treasury yields forced lenders to jack up interest rates by 75 basis points, virtually freezing up the lending process.

Charles forwarded an article by Mark Hanson at the Field Check Group entitled “As Bad As You Can Imagine.” You can read it here on underground investor Mish Shedlock’s blog.