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Each year for the last few years we've been taking a hard look at the drivers behind interest rates and conveying our thoughts about where they will go in the future. When we last looked at where rates were headed last December, we surmised that without substantial global economic growth that rates wouldn't move higher. Well … they didn't move higher…they moved a lot lower. With the onset of a global pandemic, interest rates went on a wild ride through the first half of 2020. That ride has had far-reaching effects on investors, especially those with interest rate-sensitive liabilities like corporate pension sponsors.

So how has the current economic environment affected interest rates and what could cause them to change course between now and the 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-year reached roughly 3.25%.  We began 2020 at approximately 1.50% on the 10-year and have since fallen to all-time lows below 0.60%.  Corporate bond rates started 2020 lower than where they began in 2019 and have fallen further so far in 2020.