Friday, September 13, 2013

Some Perspective on the "Rising" Interest Rate Environment

The following chart shows the 10-year moving average of the 10-year treasury yield.


Click to enlarge.

Rising interest rates? In my opinion, the bond market is simply trying to climb back to the long-term declining trend.

Long time readers know that I post a lot of exponential trend failures on this blog. You might therefore wonder why I trust this one not to fail. The simple answer is that I don't. It's more of a question of which direction it would fail.

I am definitely in the minority. As seen in the chart, we're currently well below trend. I do not believe this economy is strong enough to support a sustained climb back up.

This chart predicts that the 10-year moving average of the 10-year treasury yield will be 3.0% in August of 2018. That's roughly 5 years away. I shall take the under.

It's just an opinion of course.

Opinion has caused more trouble on this little earth than plagues or earthquakes. - Voltaire

My opinion isn't going to do much in the grand scheme of things. If I am wrong, no big deal. I'm in the minority here. Who cares what I think? It is the opinion of the masses, those in ivory towers, and those in power that would concern Voltaire most more than likely.

September 3, 2013
5 ways to prepare for higher interest rates

If you don’t like the idea of buying individual bonds but don’t want to get burned by raising rates, short-term bond funds are an alternative.

Yes, short-term bond funds! It's worked out great so far. Just get in there and patiently wait for the end of ZIRP. It is bound to happen any day now!

Yahoo: SHY Performance

3-Year Total Return (Mkt): 0.56%

This is not investment advice.

Source Data:
St. Louis Fed: 10-Year Treasury Yield

9 comments:

Stagflationary Mark said...

Heaven help us all if we enter the next recession while we're still in ZIRP, and yes, I think it could easily happen.

TJandTheBear said...

Easily happen? Watch it happen.

p.s.: I still say you can't argue that economic strength is the sole factor governing interest rates.

Luke Smith said...

So I was at Barnes & Noble the other day looking at books (I know, who does that anymore?). I happened to notice one of those 'For Dummies' (i.e. 'For Luke Smith') books on the subject of R.

I soon realized it had nothing to do with films unsuitable for adolescents or pirates, but instead covered graph trends. So, I quickly sat it back on the shelf, stepped away in a not so nonchalant manner and left.

Anonymous said...

Oh you mean the "Retiring Wealthy for Dummies" Book? Good choice putting it back because even dummies know you can't retire rich anymore.

Stagflationary Mark said...

TJandTheBear,

I still say you can't argue that economic strength is the sole factor governing interest rates.

I would agree with that. There are *at least* two.

1. Real economic strength
2. The illusion of economic strength

Both seem to get interest rates to rise. You can probably guess which one I think is doing it right now. The list doesn't end there of course.

3. Currency crisis (reaching the ultimate limit that generally comes without warning)

I don't think we'll have #3 in the foreseeable future. Just an opinion. I'm not going to argue what the foreseeable future is. Might be a year. Might be the rest of my life. Oh please let it be the latter, lol. Sigh.

Stagflationary Mark said...

Luke Smith & Anonymous,

I thought it was "Recessions for Dummies" but I stand corrected.

R For Dummies

Visualize it learn to use R's powerful data visualization features to create beautiful and informative graphical presentations of your data

Well, maybe I stand corrected. I'd like to think that recessions do make it easier to create beautiful and informative graphical presentations of my data. Perhaps I'm biased, but what's more beautiful than a failed exponential trend? Hahaha! *cough* Sigh.

Gallows humor.

Stagflationary Mark said...

Might be a year. Might be the rest of my life. Oh please let it be the latter, lol. Sigh.

Should the odds start to favor the former I intend to rig the game a bit by engaging in life-shortening risky behaviors such as sky diving, tornado chasing, and shark wrestling, lol. Sigh.

More gallows humor.

dearieme said...

Now that interest have risen a little, it's plausible that they could move in either direction. Which changes things.

Stagflationary Mark said...

dearieme,

Relaxing Swinging Pendulum

Oh, yeah. Relaxing. Not at all creepy, lol. Sigh.