Investors, Relax About Rising Interest Rates

Rates must go substantially higher before bonds can challenge the return on stocks.

The bond market, like the canary in a coal mine, senses when there is a change in economic activity. From the beginning of February to mid March, the yield on the ten-year Treasury bond jumped by more than a half-percentage point, signaling that traders believe the Fed’s policy of keeping short-term interest rates at record low levels may be coming to an end. With strong payroll gains and glimmers of a revival in the housing market, the case for a sustained economic recovery is strong. That means it’s unlikely the Fed will be able to maintain its near-zero rates well into 2014, as it has indicated it would do in recent policy statements.

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Jeremy J. Siegel
Contributing Columnist, Kiplinger's Personal Finance
Siegel is a professor at the University of Pennsylvania's Wharton School and the author of "Stocks For The Long Run" and "The Future For Investors."