What's going on with interest rates? (Part 2)
Looking at the moves in further-forward rates and the changes in real vs. nominal yields, as well as some intriguing cross-country rate differentials in the English-speaking economies
A few weeks back, I tried to explain the recent dramatic moves in 2-year yields in the rich English-speaking economies of Australia, Canada, New Zealand, the U.K., and the U.S. I ended with some unanswered questions about the relationships between shorter-term and longer-term rates, and I promised that I would write a follow-up note that would try to address those questions.
In this note, I will focus on how to interpret the price action in longer-term rates, as well as real vs. nominal yields in the U.S. I will also spend some time on the apparent mismatch between the relative levels of interest rates in each economy and their relative underlying fundamentals, which may present some trading opportunities for those able to bear the risk. I strongly encourage you to read Part 1 if you haven’t already because I want to avoid repeating myself to the extent that I can.