U.S interest rates remain historically low. The 10 year yield hovers around 1.50%. Many economists and investors expect interest rates to rise soon, jumping back to more of a normal range. However, that is unlikely to happen and here is why?

As long as interest rates in Japan and parts of Europe remain negative, money will flow from those countries into U.S. bonds. This will artificially keep yields low. The United States is one of the only stable countries with a solid economy that has positive interest rates. Countires such as Japan and Germany have seen their interest rates go negative.

There is a chain reaction of sorts here. As long as countries have negative interest rates, those investors will run to United States bonds to get some positive income on their money. As long as that money flows into U.S. treasuries, U.S. interest rates will remain low. As long as interest rates remain low, money will also continue to flow into the stock market where investors hope to get a better return that the tiny yields U.S. bonds are paying.

This is not to say the stock market will not have corrections along the way, but it is unlikely that there will be an epic collapse like seen in 2008-09 until yields start to rise higher.

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By Pro-Trader

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