Apr 142015
 

No one questions  whether the Fed will raise interest rates. But when? This has been the questions for months if not years. The best and most accurate answer I’ve given over this time is not now but in a few months.

However like ‘tomorrow never comes’ , a few months turns out to be a dynamic phrase. Nonetheless, it will come some day.

Is that day at hand, maybe! But, what does it mean really and how much can the rates change.

I saw this somewhere on the internet this morning – currently there is $5 trillion dollars of debt that has been issued with a negative yield. How or why can this be? At least part of the answer is related to currency changes or interactions. If you want to position your cash so that you can take advantage of the change in value of your currency versus another, then the actual interest rate on the debt may not be the main factor in your decision.

This will also impact the timing of the Fed’s interest rate decision. This morning the ‘spread’ on the 10 year US Treasury note versus a 10 year German bond was about 1.8%. As a result US debt is quite attractive on an interest yield only basis. If as the Fed raises the short-term Fed Funds rate, it also pushes up longer term rates as well. This will further impact the current changes in relative currency values.

This can all get quite involved and complex, but the bottom line is that US interest will and need to go up, but I’m not thinking the increase is going to be dramatic and maybe not quick.

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