Global bonds cheered dovish statements made early in the week by the Federal Reserve which saw the German 10-year note go negative, the Japanese 10-year note go further negative and the U.S. 10-year note dip to around 1.50% in response to the Fed’s comments about the sluggish economy and future interest rate increases.
The reason for the drop in interest rates include fears of a slowing global economy, the United Kingdom’s potential exit from the European Union, and the flight to safety that investors are seeking in a very complex, globally integrated world.
With interest rates so low, it is hard to not recommend locking in loans. Therefore, we remain biased toward locking for two reasons. First, interest rates are very attractive so there is no shame in locking in at these levels even with the possibility that yields still may go lower. Second, banks are struggling with such low interest rates, which is compressing their margins and some lenders are resisting the urge to lower rates further.