Wednesday, January 18, 2017

Chart Talk {01.18.17-Historical Chart of Interest Rates}

Above is a long term chart of historical interest rates using the US Government 10-year bond.  A few thoughts when looking at this chart.

1.  Best trade ever would have been to lock long term returns back in the early 90s by buying as much of the US Treasuries as you could afford.  Of course back then inflation was running near double-digits, the economy was in the dregs and things didn't look so great from a geopolitical standpoint.  Then this fellow from the outside named Reagan became President.......

2.  Even with the backup in interest rates since last summer we are still trading at historically low levels.    

3.  There is a fear among investors that interest rates are going to move higher in the next year.  This fear has been reinforced by the Federal Reserve who has said they are going to raise interest rates at least three times this year.  What nobody seems to be really considering is that after some bump in rates we might just simply trade in a range, maybe between 2-3%, and trade in that range for some period of time.  From the late 1930s to the 1960s interest rates barely budged.  Why can't it happen again.

4.  A slight rise in interest rates could be a positive.  It would give investors a bit more of a return on their savings and shouldn't put to much of a crimp on economic activity.  It might also send out a positive signal that the economy is doing better.  It would definitely aid those who need income in retirement.