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Bond market shifting: Is this good or bad?

NEW YORK, May 31 (UPI) — Rising interest rates on home loans could be a sign of a U.S. bond market bubble bursting, some analysts on Wall Street are saying.

The prevailing viewpoint, however, is hard to gauge at this point, The Wall Street Journal reported Friday.

“The Treasury market is a beach ball being held under water, and the second the Fed [the U.S. Federal Reserve] lets go, [interest rates] are going to shoot up,” chief global strategist at the brokerage firm BTIG LLC told the Journal.

The view holds that the Fed’s $85 billion per month asset purchasing program is keeping the bond market afloat, creating a demand that is suppressing yields, as price and yields move in opposite directions.

The numbers point to a distinct shift in the market. Rates on 30-year mortgage loans have climbed to more than 4 percent recently after spending most of 2012 scratching around near or at record lows.

Similarly, yields on 10-year U.S. Treasury bonds have climbed to more than 2 percent in recent weeks.

That is historically low, but rising yields invariably cause eyebrows to rise, as well, as small yield increases mean more expensive borrowing for the federal government. It also chips away at a bond’s short-term value.

“The secular 30-year bull market in bonds likely ended 4/29/2013,” declared Bill Gross, co-chief investment officer at bond brokerage Pimco in an online posting three weeks ago.

But others believe the rising rates are a sign of that markets are returning to normal.

That group is comfortable with rising yields under certain conditions.

“As long as you’re seeing higher yields because of higher growth and inflation expectations, that’s undeniably a positive,” Greenhaus said.

Copyright 2013 United Press International, Inc. (UPI).

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