The prospect of negative interest rates in Europe and Japan continue to drive high demand for U.S. bonds. Even with the 10-year U.S. Treasury dipping to around 1.65%, our interest rates in comparison to Europe and Japan are very attractive (the Japanese 10-year note is currently negative – WOW!). The reasons behind negative interest rates are not encouraging: anemic economic growth, deflation fears, declining earnings growth, and the lack of inflation. It seems that no matter what global central bankers attempt to do to stimulate the world economy, the results are muted.
For our purposes, the extraordinarily low interest rates have helped spur real estate transactions. Yet the long-term impact of such low interest rates does concern some of the experts as valuations of all asset classes reach all time highs.
With the 10-year U.S. Treasury trading at current levels, we are biased toward locking in interest rates at these low yields. However, it would not surprise us to see interest rates in the U.S. to continue to go lower.