Interest Rates: It’s a Question of Time

Remember Depeche Mode? You know the 80’s New Wave band? They blasted through the US charts. One of their iconic album’s was called “Black Celebration”.  This album was a sensation. One particular song of interest from the album was “A Question of Time”.

Lyrics:

It’s just a question of time
And it’s running out for you
It won’t be long until you’ll do
Exactly what they want you to


This can be referenced in the US bond markets with interest rates.

In the 90’s there were the “Bond Vigilantes” that put the bond markets back into equilibrium. If rates were out of the norm, they would take a counter position in hopes of the spread narrowing.


The US Treasuries rates are at an all time low. From a historical standard, there’s only 2 directions the rates will go.  The rates will go sideways or go up. 


Because rates are so low, savers have been punished with low interest rates.  These investors have been looking for higher yield.  But, as the yield increases, so do the risks.  Some of these riskier markets are corporates, high yield corporates, mortgage back securities, shadow crypto banking markets, and more.

These alternative fixed income markets create risk arbitrage interest rate opportunities for investors.  Capital will flow out of low interest rates into these higher yielding opportunities.  Examples can be seen with low bank rates and savers moving out seeking higher yield in corporate bonds.

Does it matter if the Fed lowers rates anymore? Which way will they go?

Is it a Question of time before the Fed raises rates?  As the song continues:

It’s just a question of time
And it’s running out for you
It won’t be long until you’ll do
Exactly what they want you to
It won’t be long until you’ll do
Exactly what they want you to



As the title of this article, “It’s a Question of Time.”
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Lyrics:
Depeche Mode, Martin Gore

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