It's a Low, Low, Low-Rate World

Any wonder why long-term interest rates have not risen in light of all the interest rate hikes from the Federal Reserve and the improving stabilization of our economy? I have thought about it and never really came up with an answer that would hold up to debate. After reading an article in Business Week, the answer came to light. Money is still cheap because information is much more readily available in today's economic world. Basically, we can gain more knowledge faster than we could have in years past. Technical data is easier to analyze and risks are easier to assess in today's technology driven world. With this increase in efficiency for markets, investors have learned to anaylze their risks much fater and have seemed to notice that there is less risk than once thought in most areas of investing. This means that money has become relatively cheap for borrowers. Thus, we are able to borrower more at lower rates than in years past when long term ineterst rates had similar adjustments.

It also appears that the U.S. is not the only country experiencing this phenomenon. Euro bonds have realized a simliar path in recent years. Despite a fatser growing economy in the Euro regions, real rates have not risen much above the levels seen in 2003.

What does this all mean? Interest rates will not likely rise as fast as they have in the past. Even if there remains pressure for long term rates to rise, the likelihood of any sudden or large rise is unlikely. The only sign of an abrupt change would be dramatic changes in energy costs and the ever dreaded impact of China's huge population as China becomes more industrialized. Energy is somewhat predictable and we have seen resiliency through past abrupt energy changes. However, the toll that China places on the global economy is much harder tp predict and likely to lead to more volatility.

To read this great article and learn more about the future of rates, check out this link to the story: http://www.businessweek.com/magazine/content/07_08/b4022001.htm