Beware Interest Rate Prognosticators

By: Mike Earl

Many Baby Boomers vividly remember the 14% interest rate on their first home mortgage. It's akin to a rite of passage for some of them. They almost recall it as a fond memory, it seems. 

With memories of the high inflation and high interest rates of the 1970s and 1980s seared in their minds, it is not uncommon for Boomers to be fearful about another round of soaring interest rates. I have come across Baby Boomers whom look upon bonds with great skepticism, for they anticipate swiftly rising rates will lead to poor returns for bonds.

Yet, when we zoom the lens of history back to the longest frame possible, we see that interest rates have typically fallen in a range of around 2 - 4.5%.

If you include interest rate data from the U.K., which dates all the way to 1713, a similar story is seen:

We will have more to say about the worthiness of bonds in the weeks to come, but for now, suffice it to say we are not forecasting a return to double-digit interest rates.