Related Topics
Interest Rates , Investing
     

Interest Rates: The Warning That Few Wanted to Heed

Here’s an update on this “hugely dangerous bet”

by Bob Stokes
Updated: May 05, 2022

Back in mid-2020, a common sentiment toward interest rates was that they would stay historically low for the foreseeable future.

Indeed, in July of that year, no less than the Bank of Canada governor said (BNN Bloomberg):

'Interest rates will be low for a long time': Macklem

The next month, in August 2020, a Wall Street Journal headline used more dramatic language than "foreseeable future":

Low Rates Forever!

In the same month and year, one chief investment officer also used the word "forever" in regard to low rates by saying, "We are moving from low for longer to low forever."

The reason the mainstream was SO convinced was simple: 2020 was the first year of the pandemic, and it was widely believed that low rates would have to stay "forever" to "stimulate the economy."

So, our July 2020 Elliott Wave Financial Forecast was going squarely against the prevailing sentiment toward interest rates when it showed this chart and said:

RecordRisk

The declining line in blue on this chart is the Bloomberg Barclays U.S. Aggregate Corporate Bond Yield, which is at a record low 2.15%. The rising line in red is the Bloomberg Barclays U.S. Aggregate Corporate Duration, which is at a record high 8.6. Bond duration is a measure of how sensitive prices are to a move in interest rates... Bond investors are now making a hugely dangerous bet that interest rates will stay low forever.

Fast forward to our April 2022 Elliott Wave Financial Forecast. Here's a chart which shows you what has happened since that July 2020 analysis:

Reversal

The chart updates both corporate yields and corporate durations. Corporate yields declined slightly further, to an all-time low at 1.74% on December 31, 2020, but they have since surged to 3.76%, more than doubling.

So much for the "low forever" sentiment.

Indeed, on April 14, a Bloomberg headline said:

Corporate Bond Rout is So Severe History Books Need a Revision

And, relatedly, on May 2, a CNBC headline noted:

10-year Treasury yield tops 3% for first time since 2018

And, given the Fed has historically followed the market, another CNBC headline -- this one from May 4 -- is not surprising:

Fed raises rates by half a percentage point -- the biggest hike in two decades -- to fight inflation

Learn what our Elliott wave analysis reveals about what to expect next for bond yields (or interest rates).

You can find insights in our recently published May Elliott Wave Financial Forecast, which you can access by following the link below.

Knowing the Dow Industrials’ "Wave Count" is Crucial: Here's Why:

That knowledge helps you anticipate big price moves in the direction of the main trend.

And -- just as important -- you won't be fooled by countertrend moves.

Remember, the stock market's price pattern unfolds simultaneously at all degrees of trend. Meaning -- hourly trends are part of daily trends, and in turn, these comprise the weekly trends which are part of the monthly trends and so on.

An investor needs to be familiar with all of them to make sense of what is going on with the stock market.

See what our analysts see by following the link below.

Financial Forecast Service

$97

All month long, Financial Forecast Service helps you stay ahead of the waves in the U.S. markets on the timeframes that matter the most. FFS covers the stock indexes, bonds, gold, silver, the U.S. dollar, as well as market psychology and cultural trends. It is our most popular service.

Comprises the monthly Elliott Wave Financial Forecast, 3x-per-week Short Term Update and at least 12x-per-year Elliott Wave Theorist.

Market Trek: Why Has EUR Been So Weak? Think in '8s'

There is a curious 8-year cycle in the euro's strength and weakness. And now that it's near parity with the U.S. dollar, it's worth talking about a curious pattern in the dollar's bouts of strength, too. Watch your Market Trek host Brian Whitmer show you a couple of eye-opening charts with big implications for global stability. (Brian's destination today is Madrid, Spain.)

BOOM! The Supersonic Indicator

Supersonic flight is making a comeback. And the timing couldn't be better. Our Head of Global Research explains why.

Euro/Dollar Parity: A "Sight Unseen" in 20 Years. But NOT a Sight Un-Foreseen!

In January 2021, the euro was on fire, soaring to its highest level against the U.S. dollar in three years. Mainstream forex experts saw a fixed image of a giant euro bull as the demand for the "safe-haven" buck dipped amidst a widely expected post-pandemic recovery. But that image looked a whole lot different through the telescope of Elliott waves.