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Interest Rates: The Warning That Few Wanted to Heed

Here’s an update on this “hugely dangerous bet”

by Bob Stokes
Updated: May 05, 2022

Back in mid-2020, a common sentiment toward interest rates was that they would stay historically low for the foreseeable future.

Indeed, in July of that year, no less than the Bank of Canada governor said (BNN Bloomberg):

'Interest rates will be low for a long time': Macklem

The next month, in August 2020, a Wall Street Journal headline used more dramatic language than "foreseeable future":

Low Rates Forever!

In the same month and year, one chief investment officer also used the word "forever" in regard to low rates by saying, "We are moving from low for longer to low forever."

The reason the mainstream was SO convinced was simple: 2020 was the first year of the pandemic, and it was widely believed that low rates would have to stay "forever" to "stimulate the economy."

So, our July 2020 Elliott Wave Financial Forecast was going squarely against the prevailing sentiment toward interest rates when it showed this chart and said:

RecordRisk

The declining line in blue on this chart is the Bloomberg Barclays U.S. Aggregate Corporate Bond Yield, which is at a record low 2.15%. The rising line in red is the Bloomberg Barclays U.S. Aggregate Corporate Duration, which is at a record high 8.6. Bond duration is a measure of how sensitive prices are to a move in interest rates... Bond investors are now making a hugely dangerous bet that interest rates will stay low forever.

Fast forward to our April 2022 Elliott Wave Financial Forecast. Here's a chart which shows you what has happened since that July 2020 analysis:

Reversal

The chart updates both corporate yields and corporate durations. Corporate yields declined slightly further, to an all-time low at 1.74% on December 31, 2020, but they have since surged to 3.76%, more than doubling.

So much for the "low forever" sentiment.

Indeed, on April 14, a Bloomberg headline said:

Corporate Bond Rout is So Severe History Books Need a Revision

And, relatedly, on May 2, a CNBC headline noted:

10-year Treasury yield tops 3% for first time since 2018

And, given the Fed has historically followed the market, another CNBC headline -- this one from May 4 -- is not surprising:

Fed raises rates by half a percentage point -- the biggest hike in two decades -- to fight inflation

Learn what our Elliott wave analysis reveals about what to expect next for bond yields (or interest rates).

You can find insights in our recently published May Elliott Wave Financial Forecast, which you can access by following the link below.

Knowing the Dow Industrials’ "Wave Count" is Crucial: Here's Why:

That knowledge helps you anticipate big price moves in the direction of the main trend.

And -- just as important -- you won't be fooled by countertrend moves.

Remember, the stock market's price pattern unfolds simultaneously at all degrees of trend. Meaning -- hourly trends are part of daily trends, and in turn, these comprise the weekly trends which are part of the monthly trends and so on.

An investor needs to be familiar with all of them to make sense of what is going on with the stock market.

See what our analysts see by following the link below.

Financial Forecast Service

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All month long, Financial Forecast Service helps you stay ahead of the waves in the U.S. markets on the timeframes that matter the most. FFS covers the stock indexes, bonds, gold, silver, the U.S. dollar, as well as market psychology and cultural trends. It is our most popular service.

Comprises the monthly Elliott Wave Financial Forecast, 3x-per-week Short Term Update and at least 12x-per-year Elliott Wave Theorist.

European Stocks: 15 Indicators Are Suggesting a Low

Six months of relentless sell-off (on top of war... on top of rising interest rates...) will make a skeptic out of any investor. Yet, every bear market has its rallies. Watch our European Financial Forecast editor give you a preview of the new, July issue -- and explain what he's watching for the signs of a bottom.

Asian-Pacific Stocks: Don't Fall for the Siren Song of Bearish Headlines

When you read the financial headlines these days, it looks like the end of the world. That's the kind of moment when the value of Elliott wave analysis becomes especially clear. Watch our Asian-Pacific Financial Forecast editor give you a preview of the new, July issue as he hints that today's bearish headlines might just be a siren song.

Crude Oil: From -$40 to +$130

It's hard to believe -- and easy to forget -- that at the onset of the pandemic in April 2020, crude oil prices briefly went negative. Meaning, oil producers would have paid YOU up to $40 a barrel just to take it off their hands. My oh my, how things have changed. Since March, oil prices have risen even more -- but it's been very choppy. See this extraordinary chart that shows how Elliott waves handled the recent volatility.