Yes, time seems to fly by too fast, eh? October of 2014 the 10 year note broke below 2% yield.
While generating positive investment returns, from whatever sector(s), is a pleasant way to start a new day; I remain curious and concerned about what "habits" are being established in the investing world with the continued low yield environment in bondland. I recall a discussion here at MFO (I have not searched) from several years ago about the "death" of the 30 year old bond rally. Well, I am completely sure that the "good" bond traders/investors are still making a "buck or three" for their portfolios and not bothering to check the price of items when they are at the grocery store.
But, breaking the "low yield" environment habit at some point in the future is always in the back of me brain cells related to investing and the outcomes.
Bankers can't make much money via a spread in rates as in the "old" days of normal. If I owned a bank today, I sure as heck would not lend money on a 30 year home mortgage for a 3% interest rate. Folks who remain afraid (understandably) of traditional investments will continue to obtain at par or below from CD holdings at their bank/c.u. when adjusted for inflation and some of these same folks being retired will not likely find an increase in cost-of-living for Social Security.
And what is the affect upon the newly hatched investment advisors who may only view higher yields of bonds via historical charts? Is this enough to help them properly serve their customer?
Surely, there are many other affects of low yields.
I'm not stating the low yields are bad; only that one needs to be aware of a possible continued pattern and what impact this may have for your investments and and "where" your investments reside.
First % column below = yield (as of July 8, 2016)
3 Month 0.28% -0.02 (-6.67%)
6 Month 0.36% 0.00 (0.00%)
2 Year 0.60% -0.01 (-1.64%)
5 Year 0.94% -0.05 (-5.05%)
10 Year 1.36% -0.05 (-3.55%)
30 Year 2.10% -0.05 (-2.33%)Below is from October, 2014.
http://www.mutualfundobserver.com/discuss/discussion/16248/ping-junkster-yikes-on-the-payout-10-year-note-at-2-01-at-9-33-am#latestWell, I probably need more coffee.....and I'm definitely not getting morning chores done.
But, first; I need to listen to "Bolero".
Catch
Comments
I found this piece by Larry Summers on just this topic quite interesting: http://equitablegrowth.org/equitablog/must-read-larry-summers-7/
The short version: In this era of low to negative interest rates, governments gotta start spending and borrowing more, fast. Inflation and the deficit aren't the danger; deflation and austerity are.
And the weird thing right now is that what should in theory be the easiest political sell in the world -- spending money without worrying about how to pay it back -- appears politically impossible in most of the world. Who would have thunk it?
Thank you for the link.
Generally, I'm not a fan of Mr. Summers; but this is from the mid-1990's. He and I have both changed since then.
He points to some considerations that may be part of the current monetary environment.
Those who have read before that I feel "this time is different" may feel like vomiting. But, the momentum for this time did start after the market melt. I consider the long term challenge to a new monetary environment to exist now. Long term may be another 10 years. I don't expect a 50 year "hurt".
However, whether any of this may be reflected in changes to our governmental system of finance is anyone's guess, eh?
'Course I may also have a severe case of "cranial/rectal inversion", too.
After the melt, I was a fan of giving each U.S. taxpayer $10,000 cash (some exceptions based on gross income), in addition to whatever congress or the Fed. had a plan for.....
Oh, well.
Although the unemployment rate is 5.5% workers do not have pricing power and service jobs do not pay very well.
Interest paying instruments will do very well.
My guess is that stocks will remain in a trading range.