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15 Oct 2014
We have entered twilight zone in interest rate levels - RBS
FXStreet (Łódź) - Tyler Tucci and William O'Donnell, economists at RBS suggest that the current low rates are a problem for investors.
Key quotes
"Our most recent move lower has left us with rates that are potentially a bit too low for investors to stomach."
"However, in the face of global disinflation and doubts about whether the US can sustain growth while the Eurozone, Japan, China, and Brazil to name a few, remain stuck in the mud rates potentially will see significant downward pressure."
"The commodities complex suggests that inflation will not be a problem in the near future and the inflation half of the Fed's dual mandate will probably not force them to hike if they don't feel ready."
"Additionally, once Fed buying is totally removed from the equation we might have to spend some time rediscovering price. If the 94% bulls DSI 5 day moving average and long Spec positioning in the long end are any indication, the back end of the curve will lag as the market decides at what levels they are willing to fill the void left by Fed buying."
"However, while it is too late to buy rates we feel it is also too early to sell them."
"As long as the Fed dangles a hike in the second half of 2015 they will have protection against a move lower in yields and potential artificially high Treasury prices."
"That is not to say that if ultimately a few quarters of weak growth keep them from hiking as much as they would like in 2015, it is possible that we could see a return to the May 2013 rate lows."
"But until such a time we head to the sidelines in terms of outright duration and feel it is best to target points of the curve that have the most left in them, which in our opinion is the belly."
Key quotes
"Our most recent move lower has left us with rates that are potentially a bit too low for investors to stomach."
"However, in the face of global disinflation and doubts about whether the US can sustain growth while the Eurozone, Japan, China, and Brazil to name a few, remain stuck in the mud rates potentially will see significant downward pressure."
"The commodities complex suggests that inflation will not be a problem in the near future and the inflation half of the Fed's dual mandate will probably not force them to hike if they don't feel ready."
"Additionally, once Fed buying is totally removed from the equation we might have to spend some time rediscovering price. If the 94% bulls DSI 5 day moving average and long Spec positioning in the long end are any indication, the back end of the curve will lag as the market decides at what levels they are willing to fill the void left by Fed buying."
"However, while it is too late to buy rates we feel it is also too early to sell them."
"As long as the Fed dangles a hike in the second half of 2015 they will have protection against a move lower in yields and potential artificially high Treasury prices."
"That is not to say that if ultimately a few quarters of weak growth keep them from hiking as much as they would like in 2015, it is possible that we could see a return to the May 2013 rate lows."
"But until such a time we head to the sidelines in terms of outright duration and feel it is best to target points of the curve that have the most left in them, which in our opinion is the belly."