Interest Rates 02 (Nov 14 - Dec 25)

[winston]

Bank of Singapore: U.S To Raise Interest Rate by 7 Times by End 2018

Bank of Singapore issued its investment forecast for this year, expecting that the economy will see a strong recovery after the U.S President-elect Donald Trump taking office, with a growth from 2016's 1.6% to 2.3% this year.

It is expected that the U.S will have seven interest rate hikes by end of 2018, with an addition of 0.25% each and three of which will be carried out this year.

Source: AAStocks Financial News

[winston]

This is the most important thing for investors to watch in 2017

Source: Daily Crux

http://thecrux.com/bill-gross-this-is-t ... h-in-2017/

[winston]

Be prepared for a violent Fed reversal

Source: Daily Crux

http://thecrux.com/be-prepared-for-a-vi ... -reversal/

[winston]

Stocks Have One Weak Spot – The 10-Year Treasury Yield

Right now, the biggest danger to stocks appears to be higher interest rates.

Most observers (at least the ones I respect) put the danger zone at the 10-year Treasury hitting 3%.

I actually think the market could keep going until that yield hits 3.25-3.5% provided higher rates are seen as a sign of better economic growth.

Source: Sure Money

[winston]

Why Interest Rates Could Skyrocket in the Coming Years

By Justin Brill

First, the Fed holds mostly longer-term debt, meaning relatively little of this debt has matured over the past few years. And second, the Fed has been reinvesting the cash from maturing bonds back into new Treasury debt.

But there's more to the story…

The Journal notes that the average duration of the Fed's Treasury holdings has been falling. It has fallen from nearly eight years in 2014 to just six years today.

In essence, this means the Fed has been reinvesting this cash in relatively shorter-term debt than it had been. And this has helped push interest rates higher. (Remember, bonds and interest rates trade inversely… So less Fed buying of long-term Treasurys has led to lower prices and higher long-term rates.)

According to Fed Chair Janet Yellen, this has had the same impact on benchmark 10-year rates as if the Fed had raised short-term rates two more times than it already has.

According to the Journal, the Fed is now in discussions to cut the size of its bond portfolio for the first time. In practice, this means it will stop reinvesting the cash from maturing bonds back into Treasurys. This would put even more upward pressure on rates.

The amount of maturing Treasury debt is expected to rise to $190 billion this year, followed by an enormous $450 billion in 2018, $410 billion in 2019, and more than $200 billion per year in 2020, 2021, and 2022.

Source: Daily Wealth

[winston]

Why US interest-rates can go even lower

Source: Daily Crux

http://thecrux.com/why-u-s-interest-rat ... ven-lower/

[winston]

Survey sees bear market for stocks if 10-year Treasury yield hits this level

By William Watts

Long dollar remains most crowded trade: fund managers

67% of respondents say a yield in the 3.5% to 4% range would put stocks in the danger zone

A net 32% of respondents think the dollar is overvalued, the highest since June 2006

Source: Market Watch

http://www.marketwatch.com/story/survey ... yptr=yahoo

[winston]

Money-Making Trend #2: Interest Rates are a Hot Air Balloon That Can’t be Denied

Interest rates really ARE going to continue to rise, and it will be a game-changer for fixed-income investors of all stripes.

In fact, I’m anticipating that I’ll be issuing a major sell signal for many types of fixed income investments in the next 12 months, and you do not want to miss it.

I don’t issue such warnings lightly — only a handful in the last 30 years — so believe me when I tell you this will change everything for conservative investors.

With this flip of the switch your whole approach to bonds and bond-like investments must change to match the brave new world of rising interest rates.

Here’s why: The 30-year period of falling interest rates has run its course. It’s provided a tailwind to bond returns for three decades, but now that party is over.

That means there’s a real wealth-robber just around the corner for conservative investors: Capital losses on your bonds.

You see, when interest rates rise, old bonds that pay lower amounts of income are simply less attractive. Investors sell them to trade up to higher-paying issues.

That causes their prices to fall and if you own them, the hit you can take can be quite painful.

Forgive me for covering these basics, but I hear all the time from investors who are surprised that the value of their fixed income holdings can go down when interest rates go up.

Yes, they’re still getting interest payments, but years of interest can be wiped out in weeks by ugly capital losses.

3 big factors tell me that interest rates are going up and they won’t be stopped:

1. The Federal Reserve is determined to raise the level of inflation, and that means boosting interest rates. Whether it’s because they want to increase economic growth, lower unemployment, or deflate away our massive public debt…or all three…the rates are going up.

2. The U.S. government is facing a massive entitlements burden over the next 20-30 years. You can bet that before they make painful choices like cutting benefits or raising taxes, the Feds will print money and quietly pay off those obligations with cheaper dollars.

3. The economy is picking up enough steam to stimulate higher demand for borrowing. More housing loans, rising auto sales and higher business spending all are ramping up demand for credit, which in turn boosts the interest rates private lenders can require to lend the money out.

One big trap to avoid is buying bonds with lower credit ratings and longer maturities. Don’t do it!

In exchange for bigger yields today, you could be socked with painful capital gains losses tomorrow, or worse, even defaults on the riskiest issues.

How To Let Higher Rates Boost Your Bottom Line

My basic strategy for dealing with higher interest rates has 3 prongs.

First, we move our fixed-income holdings from long-term bonds to short-term bonds.

Short-term bonds are the safer end of the yield spectrum at all times, but are especially attractive when rates are likely to rise.

Our second strategy is to use leveraged ETFs to capture quick gains when an interest rate rise is imminent — my top pick is ProShares UltraShort 20+ Year Treasury (NYSE: TBT)

This is an inverse fund — as bond values go down, this ETFs value goes up. It’s perfect for profiting from rising rates because it’s leveraged 2-to-1, so a 5% loss for bonds means a 10% gain for us.

So while other bond investors are howling with pain, we’ll be quietly counting our profits.

Now, there is risk with leveraged investments, but we’ll use this one only when the time is right and only hold onto it for a matter of weeks so our risk will be strictly limited. Just be sure to wait for my signal to buy.

Third, we’ll shift money out of bonds into vehicles like REITs and utilities that provide a high income but also have the ability to raise those dividends over time and keep pace with inflation.

Source: Profitable Investing

[winston]

Chart of the day: Low rates to prevail in US

by Nicole Elliott

The voting members of the Federal Open Market Committee in the United States, have for years been threatening to take interest rates back up to “normal” levels. This begs the questions of what is normal and why.

Last month’s decision to increase their target rate by a further 25 basis points had been anticipated by bond vigilantes since August last year, with benchmark 30-year Treasury bond yields rallying from a record-low 2.09 per cent to 3.21 per cent, so that March’s candle is a shooting star (a reversal pattern).

Its high almost coincides with 2015’s and Fibonacci 61 per cent retracement resistance.

Coupled with a descending cloud and below secular channel resistance, it means we have not as yet reversed
the well-established very long-term trend to lower interest rates.

Source: SCMP

http://www.scmp.com/business/markets/ar ... prevail-us

[winston]

Among G20 countries, there are three nations that hadn't raised interest rates in the last 10 years: Britain, Japan and Saudi Arabia.

But the Bank of England has started talking about a possible rate hike to fight imported inflation amid the pound's weakness.

Source: The Standard