It seems that the only time interest rates fall is when we have an “event” of some sort–in this case the tariffs placed on China.
Rates fell into the high 2.80’s before rebounding back up to 2.91%–we watched preferred stocks and baby bonds and there was no reaction whatsoever–flat (overall). Something we have noticed this year is that when interest rates fall income investments stay steady, but if they rise many income investments fall a bit. Obviously investors believe rates are moving higher–at some point in time. Of course if the Europeans don’t get their growth going money will keep pouring in to capture our higher interest rates.
The Fed’s tapering programs took a week off as the Fed Balance Sheet grew by about $2 billion last week. So in the last 12 weeks the balance sheet has fallen by $80 billion–at this rate it will take about 10 years to get the balance sheet normalized–don’t think that is going to happen–no way. As we have mentioned before the “run off” in the balance sheet (meaning bonds mature and the Fed DOES NOT reinvest the proceeds) continues to put upward pressure on interest rates. So $80 billion of new money was needed to buy bonds–thus far it has worked out–but 1 small glitch in the process could send rates much higher–guess we will have to wait and see how this plays out.