Markets & Economy

Falling interest rates reflect need for jobs, income growth

Bond investors are not idiots, so stick with the simplest answer
Published on May 30, 2014

Many threads, much confusion. Most important, a simultaneous event and indicator: the 10-year T-note broke below 2.47 percent, mortgages to low-fours. The chart could not be more dramatic; if not a temporary head-fake, long-term rates can fall a long way.We will know next week. Next Thursday the European Central Bank meets, and will announce new stimulus of some kind. Next Friday we'll get U.S. May payroll data. A big 24 hours.Explanations for the drop in long rates are inventive. The favorite of gold bugs, central-bank haters, and inflation bogeymen: Bond investors are idiots.A more sensible thought, but likewise mistaken: "Geopolitical risks" have driven rates down. But Ukraine is suddenly off-screen: It has a new and capable president, and Vladimir the Stupid is in rapid retreat, covering failure with a giveaway gas deal with China. Today U.S. authorities confirmed Russian troops are headed back to their barracks.Stick with simplicity: Long-term rates follow long-ter...

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