Market Commentary – 2/11/16

Falling interest rates around the globe as of Thursday, February 11th, 2016.

U.S.                       Germany             Japan                   Switzerland

1.70%                   .19%                     .01%                     -.31%

Rising volatility in stocks, currencies and commodities have greatly benefited bond yields. The yield on the 10-year U.S. Treasury note, a benchmark for everything from mortgage rates to corporate lending, fell just below 1.60% this week, its lowest level in over a year.  The two-year U.S. Treasury-note yields, a widely watched gauge of bank funding costs, also dropped significantly.  Too much of a good thing can be worrisome, and folks are concerned about the factors that are driving down interest rates.  The precipitous drop in global interest rates prompted Congress to question Fed Chair Janet Yellen regarding the potential adverse effects negative interest rates may have on the U.S. economy.

Yields are compressed and bank stocks have been under tremendous selling pressure lately due to various factors including concerns over oil related debt as well as zombie Euro-zone loans.  The added yield squeeze is also eating into banks’ profits.

Friday brought some positive news after a brutal week for global equities.  Oil and equities rallied early Friday and the European and U.S. equity markets also posted strong gains.  A strong retail report for January brought welcomed good news.

With interest rates hovering near historical lows, we remain biased toward locking in loans at these levels. Technically, bonds are overbought and a strong possibility remains for a reversal or sell off in bonds, which may yield higher interest rates.  Our mantra remains “a bird in the hand is worth two in the bush” when it comes to interest rates at these low levels.