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Interest Rates Fall, Bond Prices Rise
Greg Womack -- Certified Financial Planner Greg Womack -- Certified Financial Planner
Oklahoma City , OK
Monday, April 17, 2017


And the survey said...

In late 2016, Natixis Global surveyed 500 institutional decision makers representing corporate pension plans, public pension plans, sovereign wealth funds, insurance companies, foundations, and endowments. Survey participants said market volatility, geopolitics, and interest rates were their top risk concerns for 2017.

So far, U.S. stock markets haven't proven to be very volatile, but geopolitics caused some disruption last week. Barron's reported:

"Stocks fell 1 percent last week in quiet trading, with many market participants out for religious observances. Worries about the war in Syria, North Korean saber-rattling, and the coming French elections had investors reining in riskier positions and heading for safe havens.

Real estate, utilities, and consumer-staples stocks were the only sectors that rose last week. Financials – and banks in particular – fell, despite strong earnings reports from the industry's big kahunas."

It was a tough week for stocks, but investors' flight to safety caused Treasury bonds to rally. Reuters reported the interest rate on 10-year Treasury notes fell 14 basis points. That's the biggest weekly decline since January 2016. (There is an inverse relationship between bond interest rates and bond prices. When interest rates fall, bond prices rise, and vice-versa.)

If there is a silver lining, it's that prices are declining some. In March, the Consumer Price Index retreated for the first time in 13 months. Its 0.3% dip left annualized consumer inflation at a moderate 2.4%. Fuels, autos, and groceries have all become less expensive recently, according to the Bureau of Labor Statistics. Core consumer prices were up 2.0% in the year ending in March. The Producer Price Index (PPI) fell just 0.1% in March, with the year PPI gain left at 2.3%. The PPI measures the change in selling prices by domestic producers of goods and services over time. This includes industries like mining, agriculture, natural gas, construction, and manufacturing, among others in the producing sectors.

These lower (maintained) prices mean more discretionary income for consumers, and higher profits for business. Let's hope the trends maintain this balance of growth without the higher cost of living and higher cost of doing business.

Greg Womack, CFP
Womack Investment Advisers
Edmond, OK
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