Government bond yields have moved sharply higher in 2009 – although they remain at historically low levels. After reaching a low of 2.05% on December 30, 2008 the yield on the 10-year Treasury note climbed to a high of 3.74% last week, reversing the decline in yields that took place during the fourth quarter. The price of the 10-year T-note, which moves in the opposite direction of the yield, has plunged, resulting in about a 25% loss over the same period. Late last year, we recommended avoiding Treasuries and wrote about developing bubble in them as investors sought safe haven from the financial crisis. Now that the direction of government interest rates has clearly turned around, what does the rise in Treasury yields mean for the economy and markets?
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