An updated look at interest rates

September 13, 2010

At the end of March I wrote about the possibility that interest rates might be ready to break out of the range where they had been trading for the past few years. I took a little poetic license with our bands, concluding that for most of 2003-2005, the 10-year Treasury traded in a range of 4.0 percent to 4.5 percent with modest temporary overshoots on both the upside and downside. From 2006-2007, this band moved up to a 4.5 percent to 5.0 percent range, in large part because of a strong economy, a strong stock market and the need to pay higher rates to attract investors. Weakening conditions caused that band to move down to a 3.4 percent to 3.9 percent range in 2008 before the bottom fell out of the financial markets and a flight to quality caused a major decline in rates. In the middle of 2009, we moved right back into that pre-crisis band and have remained there ever since.

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