With the ECB poised to announce big changes on June 5, the bond
markets are prepared for more intervention, or should I say lower interest
rates. It has become crystal clear that the intention of the central banks is
to keep interest rates low by any and every means possible. There is no
rational or economic sense to keeping rates low, but there is enormous pressure
form debt-laden countries. Lower interest rates translate to lower interest
payments. When you stare at the yields of Germany and France and see
their 10-year bonds trading at 1.34% and 1.80% respectively, it makes the US
10-year look extremely attractive, even at 2.51%. As long as the ECB’s
policy remains accommodative, a stance which has now appeared to receive the
blessings of the German Bundesbank, interest rates will continue to fall and US
rates, regardless of the US economy, will be a very attractive venue for global
bond buyers. In the end, low rates will be good for the country, good for real
estate, good for corporate borrowing, and good for anyone that wishes to
borrow. It will also be bad for savers, but that is of little concern, because
“country before all else,” right?
