July 15 2015
With the odd exception such as Greece where tax evasion is deemed by some to be a national sport, there are only two things in life which are certain – death and taxes. Perhaps we should add a third item to that list – US interest rates are going up.
Speculation about the timing and the magnitude is not the purpose of this document. Rather, what matters is that we are likely at or near a structural low in terms of US interest rates.
The yield on the US 10-year Treasury increased from an intra-day low of 1.65% in January 2015 to 2.42% at the time of writing. The increase has largely been due to communication from the US Federal Reserve that they are poised to increase the Federal Funds (overnight) rate by the end of 2015, after lowering and keeping it at 0.25% since 2008.
The Fed wishes to move at least somewhat closer to normalised monetary conditions, as it attempts to ween the US (and global) economy and financial markets off ultra-low interest rates which were implemented during the Great Recession
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