Will a 50% Rise in Interest Rates Cause Financial System Challenges?

August 15th, 2013

by Chris Kimble

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What ripple effects would take place if interest rates rise 50% from current levels? Mortgages impacted? Government debt costs rise? Underfunded pension costs increase?

Starting back in 2011, the 10-year yield created a bullish inverse head & shoulders pattern. If the pattern were to be true, it would suggest much sharper interest rates are in our future. In May the Power of the Pattern suggested rates were about to blast off, and bonds would get hurt badly (see post here).

Rates have indeed blasted off since that post in May, hurting bonds badly enough to send them into negative returns for the year. Now yields are facing a falling resistance line, and we have to view the line as stiff resistance at this moment.

Remember … Resistance is Resistance until broken!

A challenge would come if interest rates push above this falling channel resistance line and head towards the 20-year resistance line (2) in the chart above. We could see a 50% rise in interest rates!

If this were to happen, it would be rather painful to many key parts of the economy. A rally in yields could create the "Perfect Portfolio Storm!" (See post here.)

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