6 May 2021
US Interest Rates: How high can rates go?
- Posted by Dejan Pekic BCom DipFP CFP GAICD, Senior Financial Planner
The market for fixed interest securities is currently pricing in the 5 year breakeven US inflation rate at 2.6% which has not been seen since the 2008 Global Financial Crisis (GFC).
The US 10 year bond yield has also moved up from the 2020 low but at the current 1.59% it is still materially below the 4.00% level in 2008.
Click for charts.
It is difficult to see US 10 year bond yield continuing any form of large increase with US debt at just over US$28 trillion and World debt over US$277 trillion or 365% of World GDP.
Put simply, the World is awash with debt, that is the elephant in the room and to take the US 10 year bond yield back up to even 4.00% would collapse prices for both growth assets and defensive assets.
As Benjamin Graham taught, remain invested according to your appetite for volatility and if bond yields do explode upwards causing fear and panic to take hold, then react by buying more quality assets at discounted prices.
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