Tags: Koesterich | interest | rates | Fed

BlackRock's Koesterich: 'Interest Rates Likely to Remain Below Average Well Beyond 2015'

By    |   Tuesday, 14 October 2014 01:39 PM

The Federal Reserve will probably begin raising interest rates in the next year, but rates are unlikely to approach their historical averages anytime soon, says Russ Koesterich, chief investment strategist for BlackRock.

"Rates are likely to remain below average well beyond 2015," he writes in The Financial Times.

"Should the yield on 10-year Treasury bonds rise to 3 to 3.5 percent over the next year, it will still be well below the long-term average of around 6 percent."

The 10-year Treasury yield stood at 2.09 percent Wednesday.

And what's going to keep rates down? Sluggish economic growth for one, Koesterich explains. "Long-term rates tend to correlate with nominal growth, which has been below trend since 2000. Low growth is likely to be with us for some time."

Then there's the aging population. "Older individuals tend to borrow less and exhibit a preference for fixed income," he notes. "This helps both lower the supply and increase the demand for bonds, which places more downward pressure on rates."

So what are investors to do?

"[They] need to consider sourcing income from alternative sources. This includes looking at more esoteric parts of the bond market — emerging market debt, for example — as well as other asset classes, from equities to alternatives," Koesterich adds.

"Like most trends, the low-yield environment will eventually end, although the sluggish nature of the recovery and deflationary forces suggest it may last into the end of the decade."

As for the Fed, until last weekend, most economists expected the central bank to begin increasing rates around mid-2015. But then Fed officials, including Vice Chairman Stanley Fischer, said that if weak overseas growth spills over into the U.S. economy, then rate hikes might have to be pushed back.

"Fischer made it clear that if the biggest economic area in the world is going through trouble, then that will affect the U.S. and impact their forecasts and they won't tighten so soon," Stan Jonas a veteran money-market trader, tells Bloomberg.

© 2019 Newsmax Finance. All rights reserved.

   
1Like our page
2Share
Finance
The Federal Reserve will probably begin raising interest rates in the next year, but rates are unlikely to approach their historical averages anytime soon, says Russ Koesterich, chief investment strategist for BlackRock.
Koesterich, interest, rates, Fed
330
2014-39-14
Tuesday, 14 October 2014 01:39 PM
Newsmax Media, Inc.
 

Newsmax, Moneynews, Newsmax Health, and Independent. American. are registered trademarks of Newsmax Media, Inc. Newsmax TV, and Newsmax World are trademarks of Newsmax Media, Inc.

NEWSMAX.COM
MONEYNEWS.COM
© Newsmax Media, Inc.
All Rights Reserved