We’ve been hearing people talk about low interest rates for almost a decade now, but what do they really mean to you? Should you even care?

 

 

In this episode, I continue the discussion with my friend George about interest rates, the bond market, and the impact of central banks on the two. George is part of the next generation Wall Streeters otherwise known as ‘quants’; a brainy sort inclined towards the application of higher math in the finance world. He studied physics and math in school before jumping into an investment bank and then the buy-side as a fixed income analyst at a very large bond fund. We discuss the impact of interest rates on regular people and the role that central banks plays in the equation.

 

We touch on:

-the increasing inter-connectivity of the global financial system

-the waterfall impact of the Fed Funds rate all the way down to mortgage rates

-an analogy of The Federal Reserve in the money market to Saudi Arabia in the oil market

-the impact of mark-to-market accounting on participants in the marketplace

-the current impacts of existing “low” interest rates

-economic uncertainty hurting future investment

-investor psyche

-the theory of no risk-adjusted arbitrage between assets

-central bank flexibility and ability to respond to a recession in the near-future

-George’s forecast for interest rates in 5 years