The Federal Reserve has just raised its target interest for the first time in 2016 and only the second time since the Global Financial Crisis in 2008. Yields on intermediate-term and long-term U.S. Treasury bonds plunged during the first half of the year but have since recovered to levels a bit higher than they started the year.
Of course, yields still remain fairly low by historical standards and this is a global phenomenon. Believe it or not, U.S. interest rates are higher than much of the world's developed economies. When yields hit their lows during the summer, there were more than $11 trillion of bonds worldwide that had negative yields. Bondholders are willingly locking up money for multi-year periods knowing that they will get back less money than they put in.
If that sounds strange to you, you're not alone! In fact, according to basic economy theory, this was considered impossible until it started happening just a few years ago. It certainly calls into question the idea that economies and markets can be reliably forecast when something that was never supposed to happen is now a central feature of the global bond market. This supports our view that it is best to stick to a well-considered long-term plan and not try to change investment strategies based on your or someone else's guess about what will happen in the financial markets.
If you've come to realize that the forecasting game is just not working in your favor but don't know what do next, contact us today and we'll try to get you on the right path going forward.