Zero Isn’t Forever

It wasn’t so long ago that the challenge of making money with interest rates stuck around zero was investors’ top concern. Those days are gone. Today, they’re worried about the opposite: the threat that now-rising rates pose for fixed income investments. That, and the downturn in emerging markets that many only recently embraced in the hunt for yield caused by those near-zero rates.

It’s easy to identify the date that things changed: May 22, the day that the Federal Reserve first alerted markets that it might soon start “tapering” the $85 billion in monthly asset purchases it has been making since December to juice the economy. And soon looks to be getting even sooner. A steady improvement in U.S. employment figures—unemployment fell from 7.6 percent in June to 7.4 percent in July—has brought into focus the 6.5 percent unemployment target the Fed set as a prerequisite for raising short-term interest rates. On Thursday, the U.S. Bureau of Labor Statistics released yet another piece of good news on the employment front: New applications for unemployment benefits sank to their lowest levels in six years in July.  (more)

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