High, No... Rising, Maybe

In July of 2009 the Wall Street Journal asked fifty forecasters whether the interest rate on the 10-year treasury would be higher or lower a year later. At that time, the 10-year rate was 3.50%. Forty-three (86%) of them said rates couldn’t go lower, and predicted higher rates. Since then, we’ve seen the 10-year as low as 1.60%, and it now sits around 2.45%. While we can never remember purchasing a 10-year treasury, this rate is used by many as a barometer of overall interest rates. At Windsor, we’ve been planning for higher rates for some time now which is evident by the very low duration in our bond holdings, as well as the increased weightings in floating rate securities. While the media seems to promote a fear of higher rates, many retired fixed income investors should be welcoming higher rates (as long as duration is kept low). For years now, the public has been complaining about low rates, now they are worried about higher rates. For our clients with fixed income holdings and a need for better cash flow, we say “higher rates? Bring them on!”

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