One Important Reason For Rising Interest Rates: Rising Rates Around The World

June 11, 2007 at 11:08 am  ·  Category: Interest Rates

A couple weeks ago David Gaffen at the WSJ’s MarketBeat blog had a post everyone should read on five reasons for rising interest rates: (1) Higher Yields Around the Globe (2) Diminished Expectations for a Rate Cut (3) China Diversifying Their Reserves Out of Treasuries (4) Economy Holding Up Better Than Expected (5) Technicals.

And today in his “Ahead of the Tape” column , “Old Formulas For Bonds May Get Tossed” (subscription required), Justin Lahart digs a little further into one of the most important: Rising Interest Rates Around The World.  He writes:

outside the US, central bankers are showing a greater penchant to raise interest rates, putting pressure on rates here….

With short term interest rates rising abroad and stronger economies making the rest of the developed world look more attractive, US interest rates might need to move up, too, to keep attracting foreign capital.

Just last week the European Central Bank raised their short term interest rate target from 3.75% to 4.00% and the New Zealand Central Bank raised theirs from 7.75% to 8.00%.  The Bank of England held its target rate at 5.5% but many expect its next move to be a hike (subscription required).

Today, Japan’s 1st quarter GDP was revised upward from 2.4% to 3.3% (subscription required) giving the Bank of Japan (BOJ) more leeway to potentially raise interest rates in Japan.

And consider the rise in yields on 10 year government bonds over the last year in the following countries:

Australia: +.55, to 6.26%

Canada: +.31, to 4.63%

France: +.64, to 4.60%

Germany: +.62, to 4.56%

Japan: +.05, to 1.90%

Britain: +.80, to 5.40%

That said, considering the absolute level of interest rates here and abroad, it does appear to me (though I am no expert on global interest rates), that US treasuries represent good relative value at current levels (5.126% as of 2:00pm EST).

UPDATE (Mon 6/11, 2:30pm EST): Lahart addressed this same issue in his “Ahead of the Tape” column, “Look Overseas For Why Rates Are Rising” (subscription required), last Tuesday morning (6/5) before the three day selloff triggered by rising interest rates.

UPDATE (Wed 6/13, 12:30am EST): Bespoke Investment Group has a useful post on the subject of rising interest rates worldwide with charts of the trading ranges of a bunch of 10 year government bonds.

Posted by Greg Feirman  ·  Trackback URL  ·  Link
 

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