Interest rates around the world
As mentioned in our last blog post, for the first time in over ten years, the federal reserve reduced the benchmark lending rate (also known as the fed funds rate), by 0.25%. Interest rates in the US and around the world remain at historic low levels. Two key reasons are driving the low-interest-rate regime:
- Relatively low inflation expectations and weaker economic growth outlook across the globe.
- Demographic trends, aging population, and longer life expectancy in certain key economies have increased the demand for safer assets/bonds. This trend has put further downward pressure on bond yields around the world.
What US investors and savers may be unaware of is that there is currently over $14 trillion in investment-grade bonds around the world, that have negative yields! A German or Japanese investor, buying a 10-year government bond in their country today will earn negative returns if they hold on to those bonds to maturity!
The table below provides a snapshot of the current interest rates in key developed countries.
1-Yr Govt. Bond Yield
10-Yr Govt. Bond Yield
30-Yr Govt. Bond Yield
Data as of 08/13/2019; Source:www.investing.com
Former fed chairman, Ben Bernanke, age 65, has maintained the opinion that the interest rates will stay relatively low during his lifetime. Alan Greenspan, another former fed chair, recently said that he wouldn’t be surprised if US bond yields turn negative.
Given the current backdrop of aging demographics and weaker economic growth around the world, we also concur that the US interest rates will likely remain closer to the lows.