After the Federal Reserve raised short-term interest rates a quarter of a point today, we wanted to share an article we published in our November issue of the 401kSelections.com Member monthly 401k Report.
Bye Bullish Bonds?
Is the 30-year bond bull market coming to an end? Three factors may help answer the
question. The Federal Reserve may have no more excuses about raising rates come December.
One the unemployment rate has dropped to 5%, which is the lowest level since April 2008.
Two is the rate of inflation may soon increase. With falling energy prices, inflation has been very muted. It runs at less than 2%. OPEC recently revealed that they believe oil is roughly where it needs to be. So inflation may return in 2016.
A third factor comes from page 72 of my book Grow Your Invesments with the Best Mutual Funds and ETFs. This is the now declining ratio measuring the percentage relationship between federal debt and Gross Domestic Product (GDP).
This may sound a bit esoteric, but basically it is a ratio between debt and production. Think of it in terms of your own debt. If you owe $20,000 and make $40,000 per year,
your debt to output is 50%. If you owe $200,000, your ratio is 500%. At some point, the ratio indicates a problem. Likewise with the US.
Debt though has recently begun to slightly decline, while GDP has continued to grow. This makes the ratio decline, bearish for bonds. These three factors combine to suggest that the bond bull market may soon be ending. We may begin to see the trend change from down to up in interest rates in 2016.