Where can interest rates go from here?

Investment Insights

Mike Jones

Take a look at the following chart, which shows the trends for inflation, 10-year treasury yields and the federal funds rate over the last 5 decades.

interest rates

Looking at this chart brings one and only one question to my mind: where do we go from here?

Before answering that question, let’s consider the context.

Most individuals have 20 to 30 years to make and save their retirement nest egg. Needless to say, the performance of the securities markets (stocks and bonds) during that time and how you manage around that both have a tremendous impact on your financial success during your golden years.

Another factor which is a predictor of financial success during retirement is the current interest rates available to investors as they transition from their accumulation years to the distribution phase of retirement.

At the chart shows, interest rates are at historic lows. Consider the yield on a 10 year US treasury note, currently around 1.8%. On $2,000,000, you’ll earn just $36,000 a year.

Now back to the original question. Where do we go from here?

There are only three possibilities.

  1. Rates go even lower. Before you dismiss that as a possibility, take into account that there are now many sovereign bond issues around the world paying negative interest, i.e. investors are paying to get most but not all of their money back when their investment matures. With central bankers continuing to maintain such an accommodative stance, this situation could happen. The reality is, however, that compared to the last thirty years rates can NOT go much lower on a relative basis.
  2. Rates stay right where they are. The argument here is that government debt levels are so high and central bank balance sheets are so bloated that substantially higher rates would be too detrimental to those who control the levers on interest rates. They won’t let that happen because they can’t afford for that to happen…. for years. The mantra for the group on Wall Street espousing this view is “lower for longer.” They have a solid case. But what if they are wrong.
  3. The last possibility is that interest rates head back north, as in, go up. After years of “printing money,” economic theory suggest that inflation and higher rates are imminent. Well, maybe not, as some have been saying this since 2010 and they have been WRONG. I believe we will see higher rates, and trust me, most professionals will not adequately predict the timing of that rise in rates. Not even me.

So what is an investor in fixed income to do?

  1. Pay attention.
  2. Keep maturities shorter as you are not rewarded enough to extend maturities.
  3. Have a plan for what you intend to do when the technical analysis points to a shift in sentiment.

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Byron R. Moore, CFP® is Managing Director / Planning Group of Argent Advisors, Inc. Mike Jones is Managing Director / Investment Group of Argent Advisors, Inc. Write to either at 500 East Reynolds Drive, Ruston, LA 71270 or call (318) 251-5800. This newsletter is available via email on a free subscription basis. You can subscribe by clicking here. Direct any questions, comments or suggestions to Byron Moore at bmoore@argentadvisors.com or to Mike Jones at mjones@argentadvisors.com.
Please remember that past performance may not be indicative of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by Argent Advisors, Inc.), or any non-investment related content, made reference to directly or indirectly in this newsletter will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful.
Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. The opinions of any single advisor do not necessarily reflect the opinions of Argent Advisors, Inc. Moreover, you should not assume that any discussion or information contained in this newsletter serves as the receipt of, or as a substitute for, personalized investment advice from Argent Advisors, Inc.. To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing.
Argent Advisors, Inc. is a registered investment adviser registered with the Securities and Exchange Commission. Argent Advisors, Inc. is neither a law firm nor a certified public accounting firm and no portion of the newsletter content should be construed as legal or accounting advice. Argent Advisors, Inc does not offer tax, legal or insurance advice. If you are a Argent Advisors, Inc. client, please remember to contact Argent Advisors, Inc., in writing, if there are any changes in your personal/financial situation or investment objectives for the purpose of reviewing/evaluating/revising our previous recommendations and/or services. A copy of the Argent Advisors, Inc.’s current written disclosure statement discussing our advisory services and fees is available upon request.


Argent Financial Group

Celebrating its 30th anniversary in 2020, Argent Financial Group (Argent) is a leading, independent, fiduciary wealth management firm. Responsible for more than $30 billion in client assets, Argent provides individuals, families, businesses and institutions with a broad range of wealth management services, including trust and estate administration, investment management, ESOPs, retirement plan consulting, funeral and cemetery trusts, charitable organization administration, oil and gas (mineral) management and other unique financial services. Headquartered in Ruston, Louisiana, Argent was formed in 1990 and traces its roots back to 1930.

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