One of our favorite, as well as one of the best indicators that investors can follow is that of interest rates. Since we are global macro traders we follow interest rates across the globe for every country that we can find reliable data. We track short and long rates for 58 different countries for use in many of our models as well as for other indicators like global and regional yield curves.
As you can see in the chart below (click to enlarge) short term rates for the G-10 are low. In fact right now there are five countries that are following a zirp (zero interest rate policy) and consequently their 90 day rates are down under .5%.
G-10 Short Term Interest Rates
After dropping significantly throughout the second half of 2008 as Government Bonds went into the stratosphere, rates have since recovered quite a bit during 2009. As we mentioned in a previous post on Treasury Bonds we think that just like rates overshot to the downside they have also overshot to the upside. With recent comments by the Fed that essentially said that they will not be raising rates for the next year…or two, we are a bit taken back by the sell off in Treasuries the past few days. (click to enlarge)
G-10 Long Term Interest Rates
The chart below (click to enlarge) shows the average 90-Day and 10-Year government yield for the G-10. In our view this chart shows how the ECB was very slow to lower rates while still preoccupied with the fear of inflation in the fall of 2008. Looking back, and even at the time, this view was ludicrous as everything on the planet was dropping like a rock. In fact the world at one point had lost 42% of its wealth. Obvioulsy rates were eventually lowered but we were, and still are a bit amazed by the lack of understanding shown at the depths of the crisis by Jean Claude Trichet and his crew.
G-10 Short and Long Rates
Here is the chart (click to enlarge) of the G-10 GDP weighted yield curve. As you can see it is extremely steep with the spread at 2.63% after having been negative back in late 2007. Remember back in 2007 when people were saying that this time it was different and that
the economy was great? Well they were wrong and the yield curve gave a big neon flashing warning signal. We were fortunate in that by heeding its cry we were able to not only preserve capital but actually generate positive returns in 2007 and 2008.
G-10 GDP Weighted Yield Curve
Finally here is the Global GDP Weighted Yield Curve (click to enlarge). Using the country weightings in the MSCI index it is made up of 40 different countries. It has hit new highs this week at 2.20%.
Global GDP Weighted Yield Curve
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Title: Global Interest Rate Trends