Bond Yields Hit 24-Year High; Reserve Polishes Its Hike Wand

Ten-year bond yields touched 5.35 percent last week, a 24-year high, and a governor of the Federal Reserve of Waterdeep says another interest rate hike is on the way. The Reserve's rate sits at 3.75 to 4 percent. The bond market has decided that is not enough. (I have checked these numbers four times. They keep being these numbers.)

A yield is the price of lending to the Royal Exchequer of Waterdeep, and every tavern-keeper's loan is priced off it. At 5.35 percent, a 10,000 gp loan costs 535 gp a year. On the Loaf Index, where one honest loaf is 6 copper, that is 8,917 loaves. When hearth-loans reached 7.40 percent, I thought we had found the floor of the cellar. There is a lower cellar.

On Thursday, Reserve Governor Kristoff Wallop of the Hawkish Bench said more hikes would be needed. "If the data continue to come in as expected, I anticipate additional hikes," he said, adding that they need not come at consecutive meetings. This is meant to comfort us. It is a landlord promising to raise the rent, but only on alternating Tuesdays. The betting houses now give a December hike about 81 percent odds, with a pause expected at the October meeting on the 27th and 28th.

The usual suspect is Calimshan. Its war and the closure of the Hormoth Narrows keep pushing up the price of lamp oil, which jumped again on Monday to a two-week high. Inflation still runs more than a full point above the Reserve's target, so a quarter-point hike would cost a borrower another 25 gp per 10,000 gp a year, or 417 loaves. Lamp oil moves the carts, the carts move the grain, and the grain goes to the mill. Flour is, regrettably, in the chain.

The Exchequer's thirty-year auction drew solid demand on Thursday and yields slipped, and the markets treated this as great news, the way you celebrate a smaller bill. Governor Wallop says he is "not greatly concerned" about a slowdown. My colleague Sterling Vanmoor calls the yields "a vote of confidence in the realm." I call them 535 gp.

My aunt Marigold, who keeps her savings in a boot, asked whether she should buy a ten-year note. I said the yield was attractive. She said the boot has never once gone down in a week. We left it there. I am reconsidering the boot.

What this means for your pantry: if you are borrowing, ask for a fixed rate and do not wait for the December meeting. If you are saving, a 5.35 percent note now beats the boot. Buy the flour now.

— B.T. (Loaf Index: see sidebar)