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Why Interest Rates May Crash Now, But Soar Later

September, 2014

One of the greatest financial oddities today is how so many countries with record debt levels can warrant such low interest rates on their sovereign bonds.  Bond investors are essentially locking in negative returns after today’s taxes and inflation, let alone the risk of greater inflation looming in the future.  Even with historically low U.S. interest rates, it is instructive to look at interest rates around the world.  Germany, Japan, and Switzerland all have 10-year bond rates below 1.0%.  Japan illustrates the most glaring extreme.  Riddled with over a quadrillion yen in debt and facing a massively shrinking population, they have embarked on a reckless economic “Hail Mary” to double their money supply.  Even with all of this, investors are still willing to lend Japan money at a paltry 0.5%!

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