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At first rates rise very slowly then suddenly very fast

That 3.00% percent milestone in interest rates that analysts warned about is just around the corner. 10-year US Treasury Bonds are now trading at a yield of 2.919.

US10Y monthly chart from 2017 - present

US10Y monthly chart from 2017 – present | Source:

A few things to note:

  • It is now at highest level since 2014.
  • Last highest print was 3.036 in December 2013.
  • Rising interest rates could lead to a correction in gold, bonds, stocks and property.
  • At first it could rise slowly and then suddenly very fast.
  • Analysts say they are surprised by central bank rate hikes but there is also a school of thought that central banks are merely responding to market rates.
  • Rising US yields could cause traditionally attractive high yield currencies such as AUD to fall against the USD as carry trades unwind. For example, AUDUSD topped recently on 29 January – the same day US 2-year yield overtook return on the AU 2-year.
  • At the moment, CME Fedwatch Tool probabilities indicate 2 rate hikes from March to end of 2018.
  • It is a good time to pull out this very entertaining video of Mr Hu Li Yang speaking (in Mandarin) at the 2013 Shares Investment Conference.

Video transcript

  1. Many people say interest rates will not rise quickly.
  2. Interest rates will rise faster than you imagine.
  3. Many people say interest rates rise because of economic recovery.
  4. Wrong!
  5. Interest rates rise because of expectation.
  6. When people expect interest rates to rise they start borrowing but when everyone borrows, rates will rise very quickly.
  7. Many people say rates will rise slowly in steps of 1/8, 1/4, interest go up very slowly.
  8. The speed will be very fast from 2 – 4%.
  9. I have seen it double in 6 months.
  10. Be prepared.
  11. Once rates rise, gold will fall, bonds will fall, stocks will fall, property will fall.
  12. People tell me they feel sad for their children because they cannot afford property anymore.
  13. Property prices have risen so much they cannot afford in their lifetime.
  14. I tell them they worry too much.
  15. 10 years later your children will tease you because their property will be cheaper and bigger.
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