We have been stuck in an environment of low interest rates for over three years. The current yield on a purchase of a newly printed US 10 Year Treasury is 2.98%. These low rates have been great if you were a borrower, but a nightmare for low risk fixed income investors.
We have been advocating for some time that Ben and the Fed have interest rates set at “life support levels”, but the consumer, banks and economy have healed significantly since 2008. It’s time in our opinion to begin removing the Fed’s support for the economy. We will then see if the US economy can stand on it’s two feet again without any support.
The following is a great article by Vanguard’s Joe Davis “The Fed’s Great Escape” that gives a good view of how this unwind will occur. He has some comparisons to the movie The Shawshank Redemption (which I loved), so hope you enjoy.