Contributed By: The Big Fat Whale
The last time the fixed deposit interest rate went up above 3% was in 1998. Savers and property owners on mortgages have been used to a low-interest rate environment for a long time.
With any hints of a crisis, the central banks have been very proactive in their quantitative easing policies that have flooded the financial markets with excessive liquidity.
That has led to euphoric bubbles with most now being tamed. The surprising element was inflation was accommodative during this period as it just nudge nicely along.
However, what changed the overall game plan in recent times was inflation is turning into a beast with the US latest figures hitting above 8%. The parallel scenario would be the 1970s period when the overall economy was in a stagflation mode- High inflation but low growth.
They only managed to finally curb the inflationary pressures when the US central bank go all out by increasing the interest rates to 20% in 1980. The current Federal Interest Rate is at 3.25% with the expectation of it reaching 4% in the near term.
Not taking into consideration the recent ultra-low interest rate environment over the past decade, the normal sweet spot for interest rates would be around 2%-5% region. Therefore, if you look at it, we are just back to a normalised situation.
| US Debt | Current Yield |
| 2 Yr | 4.35% |
| 10 Yr | 4% |
| 30 Yr | 3.95% |
Source: Investing.com- US Treasuries Yield
Given the backdrop, it is no surprise that US Treasuries are looking attractive with 2 Years Bills giving a yield of 4.35%.
Giving some perspective, a decent corporate bond in Singapore in the pedigree of AllGreen and Straits Trading is currently giving a yield of 4%-4.5% and has an expiry date of close to 3 years.
The latest Singapore Treasury Bill auction in October for 1-year yields 3.7%.
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