Cliff Clavin, Zombies and Interest Rates

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In a recent BNN interview with Myles Zyblock ,Chief Investment Strategist with Dynamic Funds, he revealed some very interesting Cliff Clavin like statistics on the present state of interest rates around the globe. Picturing Cliff on his favorite bar stool at Cheers, here are a few of the facts that he would find irresistible.

 

- There have been 600 interest rate cuts around the globe since Lehman Brothers failed in 2008

- Bond yields in France are the lowest since 1741…only because they didn't keep track before then.

- Bond yields in the UK are the lowest since 1701…only because they didn't keep track before then.

- 6 trillion of global government bonds are yielding less than 0%. For example, the 2 year government bond in Germany is yielding -0.4% which means you would have to pay them for the "safety" of holding their bonds.

 

As we can't find a way to put it better, the following quote captures the feeling of many industry experts when thinking about US interest rates.

 

"I think the market is ready and comfortable for an increasing Fed funds rate," said Alan Rechtschaffen, portfolio manager at UBS Wealth Management Americas in New York. "We just have to turn this aircraft carrier around, get out of this zombie-like economy which is being fed on an elixir of low interest rates and get to a process of normalization."

 

Why should you care? The US is potentially going to increase their fed funds rate in a few weeks for the first time in a very long time. Although we do not see interest rates going up quickly, this will represent a  change in the direction of rates in the largest economy in the world. This normalization of interest rates will eventually shift how you need to manage your debt and your investments in future years.