Why Are Rates Falling?

The Real Estate Espresso Podcast

Why Are Rates Falling?

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Welcome to the Real Estate Espresso podcast, your morning shot of what’s new in the world of real estate investing. I’m your host, Victor Menasce. On today’s show, we’re looking at the recent drop in interest rates. Yes, I know, the Fed has kept rates constant, so what am I talking about? In fact, the next Federal Open Market Committee meeting is on Tuesday and Wednesday next week and we can expect a monetary policy announcement on Wednesday afternoon.

We’ve seen the yield on the US 10-year treasury fall by 60 basis points, or six tenths of a percentage point since January. So the question is why? What is causing rates to fall? At the same time, the US dollar is falling and the stock market is falling. If the yield is falling on US treasuries, it usually means there’s more buyers bidding down the yield.

If there are more buyers, the US dollar should be rising as international investors pile into US treasuries. But the US dollar is falling. At face value, if normal market forces were at play, why would the dollar be dropping?

On today’s show, I’m going to attempt to explain what I think is happening. We’ll start with a hypothesis and then see if that holds true or not. If the economy is in contraction, the Fed will have little choice but to lower interest rates, that is, short-term rates.

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