Interest Rates Still Going Down

By Dr. Duru written for One-Twenty

January 29, 2007


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Last week, the market spent a good amount of time shivering in its boots about the prospects of higher interest rates. The yield on the 10-year Treasury has rallied sharply for two months straight and now sits at 4.879%. While I have repeatedly claimed that the Fed is much more likely to raise rates again than to lower them, I have to take pause at the longer-term picture on rates. Perhaps the market should also take a chill pill on this view. I have posted long-term charts on interest rates clearly showing the sustained, overall downtrend. Today, I wash, rinse, and repeat. This time, I post a chart spanning over 40 years of rates to once again remind us that the overall trend on long-term rates remains down.

10-year interest rates

The Fed meets this week, and I suspect it will dribble out the same ol' same ol' of late. But the market will be taking one last desparate look for hints of the timing for a rate cut. When the market does not get the news it wants, I will not be surprised by some swift selling, followed by swift buying by those who actually take comfort in seeing how strong the economy remains. Who knows who will win the tug-of-war after that. But note carefully. The dollar is back in bear market territory and the long-term decline in rates tells us that the dollar will remain under pressure for some time. Given the backdrop of a weak dollar combined with a stable American economy and robust global economy, I remain bullish on gold and commodities in general. If the downtrend in long-term rates somehow breaks here, then all bets are off of course...!

Be careful out there!

DrDuru, 2007