Rates? Still Heading Down

09/02/2015 9:00 am EST


Mary Anne & Pamela Aden

Co-Editors, The Aden Forecast

Interest rates are rebounding along with stocks. But the major trend remains down for interest rates and up for bond prices, suggests Mary Anne and Pamela Aden, editors of The Aden Forecast.

Overall, bond prices are set to rise further. This means bonds will remain safe havens and the Fed will not be raising interest rates anytime soon, despite today’s strong upward revision in second quarter GDP.

The interest rate talk seems never ending. It goes on and on and we’ve never seen anything like it. The markets are literally obsessed with what the Fed’s going to do or not do.

Any hint of a possible upcoming interest rate hike sends the markets reeling one way. And when it looks like interest rates are not going to rise, the markets swing the other way.

But despite all the gossip and guesses, the bond market has spoken and here’s what it’s telling us, that the Fed is unlikely to raise interest rates in September and probably not even later this year.

This also means bond prices are set to rise further and the bull market will remain intact. The leading indicator is reinforcing this because it has plenty of room to rise further, which is good for bonds.

The market, therefore, is telling us to buy and hold onto the bonds and bond funds we have, and continue riding this bull market as long as it stays in force.

Aside from the slow economy and deflationary pressures, inflation has remained below 2% for over three years and the IMF thinks it’s going to stay there until 2018.

In addition, there are serious concerns about China’s slower economy and their steep decline in exports, which reflects a slowing global economy.

Plus, there’s China’s wild stock market and yuan devaluation, as well as other global developments and what this all might do to the overall world economy.

This alone has again boosted the appeal of US government bonds as a favorite safe haven, which is why they’ve been rising.

We continue to feel that when push comes to shove, the Fed will opt to leave interest rates alone. This applies not only to Janet Yellen and the Fed, but to the world’s other central banks too.

This major downtrend for interest rates remains intact. That’ll continue as long as the 10- and 30-year yields stay below 2.27% and 2.97%, respectively.

Continue to buy and hold long-term US government bonds and/or the bond ETFs, by raising your bond position up to 40% of your total portfolio.

Our favorite bond exchange-traded funds are ProShares Ultra 20+ Year Treasury ETF (UBT) and iShares Barclays 20+ Year Treasury Bond ETF (TLT).

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