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Each year for the last few years we've been taking a hard lookat the drivers behind interest rates and conveying our thoughtsabout where they will go in the future. When we last looked atwhere rates were headed last December, we surmised that withoutsubstantial global economic growth that rates wouldn't move higher.Well … they didn't move higher…they moved a lot lower. With theonset of a global pandemic, interest rates went on a wild ridethrough the first half of 2020. That ride has had far-reachingeffects on investors, especially those with interest rate-sensitiveliabilities like corporate pension sponsors.
So how has the current economic environment affected interestrates and what could cause them to change course between now andthe end of the year? In this article, we'll look at:
- The drivers of short- and longer-term interest rates;
- How those drivers have affected rates year-to-date; and,
- What could cause rates to change for the rest of 2020?
Market background
Treasury rates have fallen sharply since 2018, where the 10-yearreached roughly 3.25%. We began 2020 at approximately1.50% on the 10-year and have since fallen to all-time lows below0.60%. Corporate bond rates started 2020 lower than wherethey began in 2019 and have fallen further so far in 2020.
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