Interest Rates – US direction

I posted several times recently that i will buy 10yr corp bonds with >3.7% yield to call and maturity.  My weekly update had a reference to Doug Short’s post on treasuries

There is a bit more behind my bias toward flat or down rates (with some range on either side).  The key chart from Doug’s post is this one 

The key question for me is around the trend … is this a cyclical or structural downward trend in rates.  The folks who forecast materially higher rates assume that the trend is cyclical.  For me, and others, this is a structural trend and will not via business cycles change reverse.  The structural difference is driven by automation, labor force worldwide, and the soverign debt carried worldwide.  I do not have the perview nor the tools to articulate exactly what the range bands will be, but i just cannot see the overall trend reversing.  That first group of folks, sic ‘the cyclicals’, are also the cheerleaders behind an upcoming certain US tax cut to help fuel the trend reveresal.  I am just skeptical and do not see even a perfect tax reform tip the balance vs worldwide demographics and debt.  It also seems that the answer to the question will be known by EOY ’18.

Leave a Reply

Your email address will not be published. Required fields are marked *