By Rick Glaze

Last week was a big week for the financial markets, even though the indexes saw neither wide swings nor catastrophic events.

In bonds, the 10-year Treasury bond yield, which is a benchmark for investors, broke through the 5 percent mark. In an attempt to slow the economy and keep inflation tame, the Federal Reserve has steadily lifted short-term rates from a low of 1 percent to the 4.75 percent mark. The longer bond yields have failed to follow higher until now.

The norm is for longer bonds to pay more interest to compensate investors for the risk of holding the security for more years. With the current flat yield curve, however, investors receive roughly the same payment for a 1-year bond as for a 10-year obligation. Speculation is rampant about whether or not the Fed will raise the rate again in the near future, but even if they don’t, the natural move would be for the longer-term bonds to increase in yield. Remember, the markets control longer yields, not any agency. Investors determine in what direction these securities go.

A barrel of oil is close to punching through the $70 mark despite speculation that there is plenty of the bubbly crude in reserve. Recent problems with Iran and other foreign interests may be responsible for the oil scares. The U.S. has pursued a chauvinistic, not-in-my-backyard oil policy for decades, thus domestic production remains only a small part of our daily consumption. The argument goes: Oil production can be a little sloppy from time to time, so just let the foreigners spill it on their land and we’ll buy it when it’s nice and clean. It has been suggested that our country adopt an energy policy that matches the reality of our domestic needs. What a concept!

Rick Glaze is president of Glaze Capital Management in Los Altos and a registered representative of and offers securities through First Allied Securities Inc. For more information, call 934-0920.