What Unprecedented Low Interest Rates Mean For Investors

Aug. 19, 2020 11:00 AM ETAAPL, AMZN, DVY, META, GOOG, GOOGL, SPY, SP500, IVV107 Comments


  • We have reached levels of interest rates which are unprecedented.
  • Why this is bullish for risk assets such as equities.
  • Dividend stocks are hot again.
  • Being an income investor is set to pay off well going forward.
  • Looking for more investing ideas like this one? Get them exclusively at High Dividend Opportunities. Get started today »

Co-produced with Philip Mause

The last few months have seen aggressive action by the Federal Reserve combined with a flight to quality which have resulted in interest rates in the United States that are lower than ever before in recorded history. Treasuries are now at 0.13% for one year, 0.71% for 10 years, 1.21% for 20 years, and 1.45% for 30 years. Even in the depths of the Great Depression, rates for 10-year Treasuries were not this low. While we saw similar short-duration low rates at various times after the great depression of 2008, longer-duration rates were generally much higher and 10-year rates got no lower than the 1.5% neighborhood.

These low rates on Treasuries have impacted corporate bond rates. Alphabet (GOOG) (GOOGL) recently floated a multi-billion issue with various tranches at differing maturities – the five-year tranche paid 0.45%, the 10-year paid 1.1%, and the 40 year paid 2.25%. Apple (AAPL) has issued bonds with similar yields. The low rate environment has even affected "high yield" or junk bonds. Barron's recently listed a bond on its "high yield" list which was recently issued and which yields 3%. We are actually living in a world in which a 3% bond can be described as "high yield" without eliciting gales of laughter and scorn.

While it has become hazardous to predict where interest rates will go, it's not impossible that they may actually go lower. A number of developed economies have had extended periods of negative interest rates on government debt. While there would be serious resistance to that in the United States, it's not impossible that we will get there.

Investors often wonder what interest rates have to do with equity valuations and prices and pundits do differ on this issue. But there are some ways in which the interest rate

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