Money and Metals

A pair of reports on the international finance scene. "U.S. 10-year Treasury note yields rose to 5 percent for the first time since June 2002, a harbinger of higher borrowing costs for everything from home loans to corporate bonds. Investors are pushing yields higher to compensate for the risk economic growth will cause inflation to accelerate, leading the Federal Reserve to add to 15 interest-rate increases."

"'People are going to hear about it tonight on the TV, the highest yields in four years,' said William Hornbarger, chief fixed-income strategist at A.G. Edwards Inc., which manages about $331 billion. The yield may climb to 5.38 percent by mid-year, he said."

"Yields also are rising on speculation that higher short-term interest rates and improving economic growth prospects in Japan and Europe will entice people in those regions to invest domestically rather than in U.S. Treasuries. 'We underappreciated the force of foreign buying in anchoring down rates,' said John Ryding, chief economist at Bear Stearns Cos. 'But it looks now that that's not the case, that maybe some of that foreign support is diminishing. We saw rising bond yields globally last night in Japan and in Europe as well.'"

From Business Week. "Central bankers trying to control inflation may have to work harder in the future as oil prices remain high and corporations begin spending cash reserves, the International Monetary Fund said Thursday. The international lending organization said that while globalization has provided some brake on inflation in recent years, it cannot be relied upon to do so in the future."

"'Despite having been helpful in the past, globalization may not be a crutch for central banks to lean on going forward,' said Raghuram Rajan, the IMF's chief economist."

"Adding to the risk is the possibility of further, partly globalization-related commodity price increases, including oil whose price at times has neared record levels of $70 a barrel. The forecast concludes that the contribution of higher oil prices to the trade deficits which many countries, including the United States, are running, 'will persist longer than in the past, adding to the risks associated with these imbalances.'"

"The IMF said the lack of adjustment in these imbalances is a concern. 'The large current account deficit in the United States increases the risk of a downward adjustment of the U.S. dollar, which would push interest rates up sharply and possibly lead to a recession,' the forecast said."

"The IMF defines globalization as the acceleration in the pace of growth of international trade in goods, services and financial assets, overlapping in many countries with economic and financial deregulation and with the information technology revolution."