We have crowed often and repeatedly about the fear of rising rates only to see interest rates continue to fall. Suddenly, after QE2 was announced (reminder that QE2 is an attempt to lower rates by the FED making purchases of fixed instruments) rates began to rise.
5 Reasons Rates Might be Rising?
No one knows for sure why rates are rising, as there are many hands that make up the prevailing interest rate pie, but here are a few possibilities in order of our most logical possibility, in our opinion only of course:
- With the announcement of QE2, investors feel the economy is going to grow and are pricing bonds appropriately.
- Rates have been abnormally low and are reverting to the mean.
- Investors, who have been pushing tremendous amounts of dollars into fixed income investments are finished with their allocation adjustments and may be moving into stocks.
- Foreign investors are not buying as much of our fixed income investments.
- Inflation is upon us and rates are rising in expectation of future inflation.
Our order has been carefully stated with much greater possibilities, in our opinion, of the early items than the later.
In closing, if you get the feel we are happy with rates rising slightly, you are correct. However, we do not wish for a sudden rate increase, rather an adjustment like seasonal changes, gradual back and forth but in a higher direction.
Have a Great Day!