Interest rate outlook

[wp_lightbox_prettyPhoto_image link=”http://www.economicsignature.com/wp-content/uploads/2018/02/20180216-interest-rate.png” description=”During the 1970s oil crisis, the interest rate was gradually pumped up, reaching a high extreme in 1981. Afterwards, the interest rate started to slide over the following 35 years. Within the past 30 years, the rate basically followed a well established down track. When the rate climbed up to the resistance line, it bounced back again. The down trend was not altered by 1990 Gulf war, 1997 Asian financial crisis, 2001 dot-com bubble, and 2008 subprime mortgage crisis. <br> Nevertheless, January 2018 is a turning point for the interest rate. The rate surged to break the resistance line. From the viewpoint of the technical analysis, the rate will be following a rising trend. Although the rate will not immediately jump from 2.9% to 15%, our global economy will evolve to a different look than the past 30 years.” source=”http://www.economicsignature.com/wp-content/uploads/2018/02/20180216-interest-rate.png” title=”Interest rate outlook”]

 

Interest rates of a government’s treasury bonds are frequently used as an important parameter of most economic models and asset pricing models, such as bonds, stocks, options, and real estate properties. We can treat interest rates as an anchor of asset valuation. This is the reason why central banks (e.g., Fed) can tune interest rates to control economy. In theory and in practice, when interest rates surge or plunge, all the assets will be reevaluated. Thus, understanding behaviors of interest rates is the underlying of economic analyses.

Let’s look at the monthly chart of the 10-year treasury interest rate. During the 1970s oil crisis, the interest rate was gradually pumped up, reaching a high extreme in 1981. Afterwards, the interest rate started to slide over the following 35 years. Within the past 30 years, the rate basically followed a well established down track. When the rate climbed up to the resistance line, it bounced back again. The down trend was not altered by 1990 Gulf war, 1997 Asian financial crisis, 2001 dot-com bubble, and 2008 subprime mortgage crisis.

Nevertheless, January 2018 is a turning point for the interest rate. The rate surged to break the resistance line. From the viewpoint of the technical analysis, the rate will be following a rising trend. Although the rate will not immediately jump from 2.9% to 15%, our global economy will evolve to a different look than the past 30 years.

Comments are closed