Interest Rates Move Higher

January 22, 2018

Interest Rates Move Higher Photo

My EAGLES are going to the Super Bowl! Fly Eagles Fly…

The 10-year Treasury ended last week at 2.66% – its highest level since 2014. A combination of factors are pushing interest rates in the U.S. higher to start the year.

As the stock market pushes to new highs, the economy – in tandem – continues to move ahead with good momentum. Last week, initial jobless claims fell to the lowest level since 1973. The bond market is recalibrating to a new reality as inflation may move higher in the short term. For the first time in many years, global growth is synchronized and commodity prices have moved higher as the U.S. dollar has weakened.

In addition to these fundamental factors, several Federal Reserve (Fed) officials have recently discussed the possibility of letting inflation rise above the current target of 2%, while others have talked about the need for more than three Fed interest rate increases this year.

I suspect this rise in yields has just begun, and I would remain defensive on fixed income assets. The fundamental and technical outlook for U.S. Treasury bonds is negative.

Tags: Monday Morning O'Malley | Inflation | Federal Reserve | Interest Rates | U.S. Treasury bonds

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