The Major Force Driving Interest Rates Today


Years ago, the biggest driver of interest rates was the domestic economy. Want to know which way yields are going? Just look at the latest reports on inflation, GDP, retail sales, employment, and so on here in the U.S.US_GDP_-_8471742_235133c

But boy have times changed!

These days, developments on the international front are much more important to the direction of U.S. interest rates than ever before.

Part of the reason is that U.S. bonds are owned by many more investors around the world now than in the past. The Treasury Department estimates foreign ownership of marketable U.S. government debt at just over 50%.

As of the most recent reported month, in fact, foreign holders owned about $6.05 trillion worth of Treasuries. That’s a big chunk of change.

150518133315-china-yuan-treasury-2-780x439Another reason for this development? The increasing interconnectedness of financial markets and global economies. It doesn’t take anywhere near as long as it used to for foreign economic developments abroad to reverberate here at home. And our domestic bond market now reacts instantaneously to news of foreign bank failures, currency crises, inflation spikes, central bank announcements – you name it.

jobmarketI bring this up because we have an interesting dynamic out there. U.S. economic data has been pretty solid in the last year or two, especially on the jobs front. The U.S. Federal Reserve just raised short-term interest rates for the first time in more than nine years.

But medium-to-long-term Treasury bond prices and yields have barely budged. They’ve been trading in a range for months on end, and longer-term yields are actually down a bit since the Fed’s December 16 move.

China Melt DownWhy? A meltdown in China’s stock market and a slumping Chinese economy. Lousy growth elsewhere in Asia and South America. Weakness in global commodities prices. Massive money printing and bond buying programs in Japan and Europe. Currency crises in countries as diverse as Russia, China, Brazil, Mexico, and Turkey, among others.

That’s a long list of global problems, and it has been getting longer over the past several quarters. So Treasury yields haven’t taken off as you might have otherwise expected them to.

The good news? I’ve been following the bond market closely for almost two decades now. I’ve learned which foreign (and domestic) developments matter the most to Treasury prices and yields. And I’ve done my best to put the sum total of that knowledge into an educational course – one designed to help YOU put that information to work so you can build and protect your wealth in the markets.

You can find out more more useful tips and strategies that can help you navigate Fed-fueled turmoil in my interest rate course “How To Profit From Rising Interest Rates”.  To watch the first session totally free, click here!

Until next time,

Mike Larson

Mike Larson is a Senior Analyst for Weiss Research, and is also the editor of Safe Money Report and Interest Rate Speculator at Weiss. A graduate of Boston University, Mike Larson formerly worked at and Bloomberg News, and is regularly featured on CNBC, CNN, Fox Business News and Bloomberg Television as well as many national radio programs. Due to the astonishing accuracy of his forecasts and warnings, Mike Larson is often quoted by the Washington Post, Chicago Tribune, Associated Press, Reuters, CNNMoney and many others.