Did President Obama just give the signal to short the bond market? In his comment that Ben Bernanke has served as Fed chairman longer than he has desired, the President has certainly provided a clue that Bernanke may be gone as Fed chairman sooner rather than later. Indeed, it now appears that Bernanke may be a goner by September.
If this is the time line we are looking at, interest rates may accelerate their current ascent. Although interest rates have been on a long term down trend for years (In 1987 interest rates on 10 year notes were as high as 10%, and currently stand at 2.19%) there have been periods when interest rates bucked the downtrend, two notable periods that have seen upward moves in interest rates is when Fed chairmen departed.
As Federal Reserve chairman Paul Volcker left the Fed chairmanship in August 1987, the interest rate on the 10 year note climbed from 8.2% to 9.2% between June 1987 and September 1987. This was followed, of course by the October 1987 stock market crash.
As Federal Reserve chairman Alan Greenspan left the Fed chairmanship at the end of January 2006, the interest rate on the 10 year note climbed from 4.35% to 4.65%. It then climbed above 5%.
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