How will the “return to normal” impact interest rates?

In this episode, Chief U.S. Economist Lara Rhame and Director, Investment Research Kara O’Halloran provide an overview on the volatility in treasuries and long-term interest rates.

About this episode

In this episode, Chief U.S. Economist Lara Rhame and Director, Investment Research Kara O’Halloran provide an overview on the volatility in treasuries and long-term interest rates. They discuss the key factors driving rising rates and how vaccines and the “return to normal” will impact this trend.

Transcript excerpt:

Kara O’Halloran (00:00):

Hi, thank you for joining us today. My name is Kara O’Halloran and I’m a Director in the Investment Research group at FS Investments. I am so excited to be joined today by my colleague, Lara Rhame, our Chief U.S. Economist here at FS.

Kara O’Halloran (00:14):

We are here to talk all things interest rates. What’s going on with rates, what the impact has been on markets, and where things go from here. Lara, how are you? Thanks for joining.

Lara Rhame (00:23):

I’m great. It’s going to be a good conversation. There is a lot to talk about.

Kara O’Halloran (00:27):

It sure is. And I think it is only fitting that we are recording this on March 8th, which is International Women’s Day. We have the female half of our team today. So very, very exciting.

Kara O’Halloran (00:39):

Over the past few weeks, we have seen a lot of volatility in treasuries and long-term interest rates. Lara, just set the stage for us. Give us a quick overview. What’s happened? Where are we at now?

Lara Rhame (00:51):

Yeah. Exactly to your point, interest rates have … And here I’m speaking of government benchmark industry, what we call core interest rates, have been really on a rising trend since the summer, when they bought them at levels that are at absolutely historic lows.

Lara Rhame (01:11):

Given the good news that’s rolled in about the economy, and then vaccines, and then really a growth return to normal over the last several weeks, we’ve seen rising interest rates accelerate sharply. We started the year with a tenure around 0.9. Now, it’s at 1.60 already. And that’s just seemed to have really gone with several fits and starts, but really pretty much in one direction that pace has really accelerated.

Kara O’Halloran (01:42):

What’s really driving this increase? We hear people talk about inflation or just general optimism. Is it rate-hike expectations? What’s driving this as well?

Lara Rhame (01:52):

You bring up an important point, because the reality is that interest rates and growth expectations, inflation expectations, they’re all part of the same ecosystem. And then, you have the Fed swirling around there in the middle of it. What we’ve clearly seen is a resilient economy, and such good news in the face of a renewed pandemic in the fourth quarter.

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Lara Rhame

Chief U.S. Economist + Managing Director

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