Only a few months ago, bond gurus were saying we are finally on trend to higher interest rates, and now, here we are under 3% on the thirty year bond again, at the lowest yield of 2017 so far. The picture is muddled by the rocketship surge in rates immediately post-election, but what’s clear is that that surge did not take us past the old high in rates back in 2015. Almost like clockwork, every time the ‘talking heads’ leap to the ‘rising rates’ side, rates confound them by falling.
Whither now? We look at interest rates as a product not of the Fed – who only controls the shortest maturities – but of inexorable economic trends that affect much of the developed world. These trends include aging populations and high and rising debts. Add to that a demand for longer bonds that derives from regulations and business management at banks, pension funds, and insurance companies, and you have a brew that encourages low rates. Unfortunately, that also means economic growth will remain low – not something politicians want to hear.