You may have seen recent newspaper headlines, “Interest Rates Are Rising!”  You may have wondered how that could be the case since the FED has held interest rates steady for a total of 4 ½ years.  The explanation is the FED controls short term interest rates that affect the interest rates on short term Treasury Bills, bank Savings Account rates, bank CD rates and money market account rates – these rates have not moved.  

The newspaper headline, “Interest Rates Are Rising!”  is describing longer term maturities like the U.S. Treasury Bond with a 10 year maturity, home mortgage interest rates,  and commercial mortgages.  The FED usually has only a small influence on the direction of these long term rates; but, the FED has been actively buying these long term maturity securities in the marketplace using an unconventional and questionable system that experts call “Quantitative Easing”.   The FED continues to buy these longer term maturities at the same pace.  Recently bond market speculators have been trying to jump in front of the FED tapering of Quantitative Easing to sell their present bond holdings.  When more sellers exist in a marketplace than buyers, prices go down – in this case bond prices. 

To understand bond prices and interest rates, click here:

http://news.morningstar.com/classroom2/course.asp?docId=5375&page=2