The Lure Of Low Interest Rates

[karhu]

Even if the MPC increase short-term borrowing cost, long term-rates may not move - as they have found in the US.

http://www.industryclick.com/magazineartic...36512&siteid=23

The strong appetite for debt financing is largely the result of highly favorable long-term interest rates that have refused to budge, say industry experts. While the Fed's actions have pushed short-term rates up about 200 basis points in the past year, long-term rates have barely moved. The flat — and now inverted — yield curve has created a very attractive borrowing environment. The 3-month London Interbank Offering Rate (LIBOR) registered 4.57% as of Jan. 10 compared to the 10-year Treasury yield of 4.36%.

“I think borrowers and bond investors have been lulled into a false sense of security by the narrow trading range that long-term yields have found themselves in recently,” says Scott Anderson, a senior economist at Minneapolis-based Wells Fargo & Co.

[OnlyMe]

“I think borrowers and bond investors have been lulled into a false sense of security by the narrow trading range that long-term yields have found themselves in recently,” says Scott Anderson, a senior economist at Minneapolis-based Wells Fargo & Co

Makes it sound like purely a technical phenomenon and not a fundamental one. Then again fundeamentally the markets may be saying that US gowth is going to be clobbered for a generation.

First 30 year auction this week since 2001, lets see how it goes and the following ones, maybe that narrow trading range gets busted sometime soon. Conundrum, what conondrum, if you stop printing the 30 year notes effectively what you are doing is limiting their supply and pushing their price higher.

Never forget Greenspan was the man who told Americans to go out and buy on short term rates and only months later told them they must be desirous of losing money.

Edited February 7, 2006 by OnlyMe

[karhu]

First 30 year auction this week since 2001, lets see how it goes and the following ones, maybe that narrow trading range gets busted sometime soon.

Yep and if they do Greenspan will need to go and hide in a bunker because Americans will want his head on a stake.