Interest RatesAfter seven years of extremely low interest rates, it appears the Federal Reserve is on the verge of raising the overnight lending rate. Many have argued inflation remains low and there is no need for such an increase. However, the Fed has begun to talk about the relationship between low unemployment and how it might spark inflation. What ultimately matters is not the first move, but how many moves and how high rates go. With our sluggish economy, a series of large rate increases does not appear to be in the cards.While China may be selling a small portion of their U.S. Treasuries, they are generally an outlier. Throughout the world, especially in Europe, yields are lower and sometimes negative. Even with our meager yields, U.S. bonds look attractive compared to most foreign sovereign bonds. In the search for yield, high quality corporate bond yields are above recent historical averages relative to U.S. Treasuries. This may be a buying opportunity. We believe the risks in low quality bonds remain too high |
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