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Monday, October 07, 2013

Impatient Government Authorities Could Cause Interest Rate Increase 

I read this article on CNBC recently published detailing the actions of some of the world's largest central bankers and the results are somewhat alarming if you hold government or any other type of bond.

This article is according to a questionnaire from 60 central bankers who control nearly seven trillion dollars you quickly understand what their problem is. The central bankers are impatient with the low interest rates of U.S. along with other governments bonds. Now this is not to say they believe the dollar will collapse or will not be the reserve currency. This is obvious by the central bankers willingness to have their funds in these low interest investments for so long.

Pay Close Attention
If you have bonds that are of any type this is why should you pay attention to this information?

Because we're not talking about a few billion dollars here, the Central Banks control over $10 trillion in reserves and their job is to protect that money and to get a return on that money. They are currently showing they aren't willing to lose money by holding low interest rate investments.

This survey that is sited in the CNBC article shows the 60 Central Bankers are looking to put their money in higher return investments.

A Very Clear Problem

Clearly, this is a problem for our Government and politicians. They like to spend money and open up programs to a lot more people. But the problem may soon be that they have less and less money because these other Central Bankers may not be purchasing treasuries in the same way they would have in the past.

If treasuries are purchased at a reduced pace our government will probably be outspending very quickly. We understand that the cycle does not favor spending less but raising interest rates to draw those Central Banks back. This will also cause the interest rates of other debt vehicles (auto, mortgage, credit card...) to rise. Also when interest rates rise the value of portfolios who hold bonds will drop and may even drop dramatically much to the surprise of the consumer.

What This Could Mean

This might be the start to an interest rate rises, be sure to have your bonds reviewed to see how they will be responding to rises and hints of rises in interest rates.

Matt Golab
Chief Advisor of Aaron Matthews Financial Resources Click Here To Get Contact Info For Matt Golab.

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