- April 1, 2014: Vol. 26, Number 4

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Zero probability factor: Interest rates, unemployment, tapering and the federal debt

by Geoffrey Dohrmann

As noted in last month’s column, everyone seems to be resigned to the expectation that interest rates will be going up; just not by all that much. As of today, March 10, the 10-year Treasury rate stood at 2.60 percent. Approximately one year ago, on March 11, 2013, 10-year Treasuries stood at 2.07 percent. Even with the recent drop-off in rates in response to easing of tensions in the Ukraine (as of today, at least), that still reflects a 25.6 percent annual increase in rates from a year ago.

If that rate of increase persisted, rates could grow to as high as 3.27 percent by the same time next year, 4.1 percent by the same time the following year, 5.15 percent by March 2017, 6.47 percent by March 2018, and 8.13 percent by March 2019.

Is that likely to happen? Of course not.

The point is, it definitely could happen. (The last time rates were this high was 1991 — 22 years ago.) Yet most people are not factoring in the possibility that it could. And by

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