Many investors assume interest rates can do only one of two things.
Or go down.
And many others assume that the results are binary. Higher interest rates are always bad for borrowers, the economy, and the stock market, while lower interest rates are always good.
I’m here to tell you that nothing could be further from the truth. I’ve been closely analyzing and following the twists and turns of the interest rate markets for a decade and a half now, and I can tell you that reality is much more complicated.
Take the current cycle. Many people assume the greatest rising rate cycle in 37 years that I’ve been talking about began in the spring of 2013. That’s when former Federal Reserve Chairman Ben Bernanke dropped his first “taper bomb,” suggesting quantitative easing (QE) could be curtailed before long.
|There’s a lot more to interest rates than the simple question: “Are they going up, or are they going down?”|
But if you look at the charts, you see that long-term rates began to sniff out a future change in policy long before that. The yield on the 30-year Treasury bond (and hence, rates on things like 30-year fixed mortgages) actually bottomed in the summer of 2012.
Then beginning last May, shorter-term yields and other instruments got into the act. Yields on more Fed-sensitive, five-year Treasury Notes surged as high as 1.85 percent from around 0.64 percent.
Eurodollar futures prices also plunged. If you recall, those futures have nothing to do with the euro currency. They actually track expectations about future changes in the very short-term rates the Fed controls directly — falling prices mean investors are pricing in more and/or earlier Fed interest rate hikes.
Now, we’re seeing a different dynamic. While long-term yields have retained the vast majority of the gains they notched beginning in 2012, they have temporarily stalled out. Meanwhile, shorter-term yields are continuing to surge — including that monster five-year yield move I mentioned last week.
That’s changing the shape of the so-called “yield curve.” That curve, in turn, is just the graphical representation of the yields on various Treasury securities, from 3-month bills all the way out to 30-year bonds.
Now for the most important question: Why should you, the individual investor, care?
Because your wealth is on the line. When long-term yields are rising, but short-term yields are not, it tends to benefit certain stocks over others. When short-term yields start rising faster than long-term yields, changing the shape of the yield curve, you tend to see market winners and losers shift as well.
As for your personal finances, changes in long-term yields affect certain kinds of loans and savings products differently from others. Then as the lion’s share of the interest rate changes shifts to a different end of the yield curve, it affects an entirely different group of bank products.
In sum, there’s a lot more to interest rates than the simple question: “Are they going up, or are they going down?”
To help keep you abreast of all the shifts we’re seeing now, and what they mean, I’ve taken matters into my own hands. I poured countless hours, days and weeks into creating a landmark, comprehensive special educational course called “How to Profit from Changing Interest Rates.”
I’ve had the pleasure of working here at Weiss Research for more than 12 years, and I can tell you that this is unlike anything we’ve ever done before. The course is designed to teach you all about the ins and outs of the interest rate markets — and how to put them to work for you. Not just in your core investment portfolio, but in your personal finances, your real estate, your speculative holdings, and more.
If that sounds like something you could use — and in this changing interest rate environment, I don’t know why it wouldn’t — then I urge you to watch the first session of this seven-part course. It’s available to you, free of charge, here. Or just call my customer service staff at 1-800-291-8545 and they’ll take care of you.
Until next time,