Interest Rates Lowered. Excellent Refinance Opportunity.
Slow growth in 2015 now looks like no growth in 2016. The U.S. 4th quarter Gross Domestic Product (GDP) reading came in Friday morning at a very anemic .7% register with a forecast of only 2.40% for 2016. These numbers, while backward-reading, confirm some of the suspicions that both the U.S. and the world economy are slowing. Interest rates responded favorably to this poor GDP number (remember that bad news is good for bond yields) with the 10-year U.S. Treasury touching 1.94%, WOW. Bonds were further stoked by the surprise move from the Bank of Japan to move short-term interest rates into the negative in its effort to kickstart the economy by forcing banks to lend, and consumers to spend.
There was one bright spot today. The Chicago Purchasing Manger Index (PMI) reading was 55.6 reading, which indicates manufacturing expanded and is an encouraging sign for the U.S. economy.
The Fed spoke earlier in the week and announced no change in short-term interest rates. Given the poor start to 2016, most forecasters do not believe there will be another rate hike by the Fed this year. Given that the Chinese economy has slowed, the dollar continues to surge and oil has remained lower than expected, it is hard to imagine a significant rise in interest rates. The world economies seem to be addicted to low interest rates with Central Bankers willing to provide the juice needed to propel equities higher and push yields lower. How this all ends is anyone’s guess.
Given the 10-year U.S. Treasury is below 2.00%, we are biased toward recommending locking in interest rates at these levels.