Having touched the lowest level, the rates of interest are ready to move up globally. How rapidly will it move up and will there be a significant difference between the short and long term interest are all the questions at hand. As usual the leading economists are confused, if not confounded by the erratic movements of interest rates. Since mid-April 2015, the yield on the 10 year US treasury has gone from 1.85% to 2.36%. For the same period, the yield on the German bonds surged 10 fold essentially from 0.075% to nearly 0.83%. Spanish 10 years bonds have gone from 1.45% to over 2.40%. The 19 economies that use the euro currency are expected to grow a collective 1.5% up from 0.9% in 2014. They have had the benefit of a big drop in oil prices and a depreciated currency to push up their exports.
The Japanese economy will grow 1% this year after shrinking 0.1% last year as per the IMF forecasts. The US after the icy weather and a west coast labour dispute reduced the growth from January to March 2015 to 0.7% from a potential 2.7%.
The interest rates are already slowly rising in the fixed mortgage rate. It is holding at 4.04%. People who had adjustable rates are gradually converting to fixed rates. They believe that it is only a matter of time before the rates start move up.
The global interest rates which fell significantly after the 2008 sub-prime crisis is now trending to move up. This is already creating volatility in the markets especially in the bond market adding to the panic of the bond traders.
Two questions require answer namely,
For the first question, interest rates are definitely moving up. However the rate at which it is moving up is much slower than expected because of the fragile global economic recovery. The question now is how much hike the economy can stand and the answer is very minimal.
For the second question, the short-term interest rates will move up reflecting the state of the economy and the central bank policy. However the long term interest rate a watch dog of inflation, will not rise as long as the inflation is under control. Given the oil prices and its future outlook, it appears that for the moment, there may not be any change in the long term interest rates.
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