IKe,
You and one other have alluded now to the height of real interest rates (Current rate-inflation). I am glad this thought is coming to the forefront of our thinking for the month(s) ahead. It is extremely important as, apart from the daily pushes and pulls, the propensity of rates is to go lower to get into line.
9/1/97 business week page 30 article from Howard Gleckman is full of interesting tidbits in his "The Bond Markets need a reality check". He shows real interest rates at 4% inflation premium over the one-year Treasuries, the highest in a decade. He made many intereesting comments, hopefully someone that has this online can pst the link. He also stated that "In France, the inflation premium for long-term bonds exceeds 4.5 percentage points". His conclusion for rates to drop lower "For the market to forgo a big inflation cushion, investors must be convinced that recent productivity gains are real." ... "For the time being, the financial markets may not be quite convinced that inflation will remain tame. But with stock market valuations at a historic high, and inflation at a 30-year low, the economic reality is going to become ever more persuasive. And that makes it a lot easier to believe that sometime soon interest rates are going to fall."
I don't know this author, whether he knows what he is talking about or what. I thought it would be beneficial to you to have some excerpts from a major US periodical. If nothing else, this could go int the "self-fulfilling prophecy" tab under why interest rates will fall in the near-term.
Incidentally, he had one comment that didn't ring true, but supports my prior post "Odd market theory" :
"Bond yields are also being propped up by the stock market. Investors have little appetite for a 6.5% coupon on a long-term treasury bond when an equity index fund offers triple the return, while little perceived risk. A 20% correction in stocks might change that psychology--and send bond yields plummeting. But that hasn't happened yet." I think he's a little overboard here ... but these are his comments.
Would like your input when you have the time to comment on rates for the upcoming week. I hope this info. proves helpful. |
