The all-time low yields in the 30-year U.S. Treasury bond have some people scratching their heads. We’re seeing lower interest rates now than we did during the Great Depression!
We thought interest rates were low when long-term rates were under 4%, but think again… U.S. 30-year bond rates are now below 2.5%!
But wait a minute, let’s get some perspective on rates by comparing U.S. 10-year rates and 10-year government rates around the world.
I could go on for a while but to get yields higher than the U.S., you would have to buy Greece, Portugal, Mexico or perhaps Brazilian bonds (the latter could be a little riskier).
My point is this: when investors avoid risk assets like stocks or commodities and are seeking the safety of bonds, where are they going to put their money?
Traders and investors will likely look for the safest and highest yielding bonds. For now, U.S. bonds are the safest, most liquid and highest yielding of the bunch. When there is a true crisis, like in 2008, yields dropped from 4.5% to 2.7% in less than 2 months.
I was speaking with Dr. Lacy Hunt a few months ago and he asked me if I had read an article in The Wall Street Journal from October 20 of last year which highlighted an institutional fund he runs.
He mentioned that his fund, which primarily invests in long-term treasury bonds, is doing quite well. Dr. Hunt and company have been investing in U.S. T-bonds for the past decade, betting yields would fall because of rising debt that inhibits growth and retards inflation.
It’s his view that long-term bonds will likely fall below 2%! Back in October when the article was published, yields had dropped to about 3% and by last week hit an all-time low of 2.4%.
Let me also add that Dr. Hunt is a featured speaker at our upcoming Irrational Economic Summit 2015 and has spoken at our events on more than a few occasions. His presentations are always valuable and much sought-after.
So, it certainly doesn’t look like a stretch to imagine long-term U.S. treasury yields dropping below 2%, especially with the deflationary headwinds we face and comparable global interest rates.
Even if we are likely to see lower rates over the next few months or even years, what does that mean to us? What will the Federal Reserve do?
Will the Fed raise rates in a few months, like they have been hinting at in past meetings? Will the Fed change course and try to create inflation with more quantitative easing (QE)?
How can you profit from all of this chaos?
If you have an interest in profiting from the roller-coaster interest rate market, please take a look at the Dent Digest Trader. I’ll show you how to make healthy profits by trading options that capitalize on relatively small moves in interest rates on U.S. Treasury bonds.
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