Interest Rates: How This 1000% Increase Will Overwhelm… Everything?
2-Year U.S. bond: Look at this dramatic rise in yield in just six months
by Bob Stokes
Updated: March 28, 2022
The era of rock-bottom interest rates (or bond yields) appears to be coming to an end and the consequences will be excruciating for many.
Remember, the world is awash in outstanding corporate, student, government and personal debt.
The ability to service that debt will be seriously hindered by rising interest rates.
At this juncture, let's look at one measure of how much rates (or bond yields) have already risen. This is a chart of the yield on the U.S. 2-Year bond:
As you can see, in just the last six months, two-year interest rates in the U.S. have risen from .2% to more than 2%. That's a TENFOLD increase.
Here's what that means: Suppose a company must borrow money to keep the business operating -- let's say a billion dollars. Six months ago, that debt would cost $2 million to service. Now -- it costs $20 million a year to maintain. As a colleague put it, "that's a lot of snacks in the breakroom."
Also imagine all the public debt at every level of government. That debt must also be serviced. Of course, it's the beleaguered taxpayer who will be on the hook. The average interest rate paid on the national debt in 2021 was approximately 1.5%. That's a very low percentage historically, yet it amounted to $562 billion. Imagine if rates rise significantly from here!
The headline of a Jan. 25 article in The Hill asks:
Can our nation afford higher interest rates with the current national debt?
That national debt now exceeds $30 trillion.
The silver lining around this cloud is that the financially conservative who put their money into savings accounts will finally have something to smile about.
The question is: How high will interest rates or bond yields rise?
Elliott wave analysis of the bond market offers a big clue. You might be surprised.
Read our flagship investor package for insights.
Big Turns in Financial Markets Almost ALWAYS Catch Most Investors by Surprise
The answer is simple: Most people extrapolate current trends into the future.
Yet, as you probably know, trends don't last forever.
Good news: The Elliott wave model can help you catch financial turns -- before they happen.
Learn what our Elliott wave experts are sharing with subscribers by accessing our flagship investor package. Just follow the link below to get started now.
Financial Forecast Service
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.
Forget the Fed -- Watch the Waves
The Federal Reserve, and to a lesser degree the European Central Bank, have dominated the conversation about interest rates lately. But watch our Interest Rates Pro Service analyst Ivo Zhelev apply textbook Elliott waves to forecast the price of the UK's Long Gilt -- and, by extension, UK interest rates -- without a single glance at central bank statements.
Why a U.S. Recession May Foil Economists’ Expectations
A recent survey reveals positive expectations for the economy by a group of "professional forecasters." Learn why you may not want to bet the farm on that expectation. This chart compares leading economic indicators around the time of past recessions with what's going on now.
Gold Mining Stocks Lead Gold Lower: What’s “Fundamentals” Got to Do with It?
In mid-April, gold mining stocks led by VANECK GOLD MINERS ETF turned down from one-year highs to 3-month lows in May. Gold followed, reversing from all-time highs on May 4 to multi-month lows on May 25. We don't need another "fundamental" explanation for why.