Developed world cash and bond yields in now in rising cycle. Why important?

In this paper, we discuss:

  • the evidence for us now being in an interest rate rising cycle and

  • the reasons why this is important to investors.

But in short, the reasons why this is important are:

  • At the end of a cash rate rising cycle, it is extremely common to have a crisis or crash. See Appendix C.

  • Most listed securities like shares and listed property, are priced of bond yields. As bond yields rise, a higher discount rate needs to be applied to determine the capital value (Net Present Value) of a listed share and listed property investment. So rising bond yields put downward pressure on prices of shares and listed property.

  • This also means terms deposits are likely to be higher in 12 months and some hedge fund investments should perform better.

Our paper on this topic is here: http://puzzlefinancialadvice.com.au/2017/Core/Interest_rate_outlook_171006.pdf

Compare Australian & US bond yields since 1900 - chart

US vs Australian cash rates since 1969 - chart

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