This Day On The Street
Continue to site
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Eased Geopolitical Tensions Have Little Effect on Interest Rates

NEW YORK (TheStreet) -- Rates have reacted in unusual fashion to an easing of geopolitical tensions.

Over the past few weeks interest rates were pushed lower as violence and tension increased abroad. But with Vladimir Putin saying Russia isn't going to risk confrontation with the world, those risks are diminishing.

But rather than sell bonds, investors are buying bonds because developed economies have been turning out poor economic data. It seems that no matter what, investors just want a reason to continue buying bonds and pressuring rates lower.

Case in point: The iShares Barclays 20+ Year Treasury Bond (TLT) exchange-traded fund pushed higher, not so much Putin's remarks but on weak economic data out of the United States, Europe and Japan.

Interest rate-sensitive assets in the U.S. including the iShares Core Total US Bond Market ETF (AGG), iShares Barclays MBS Bond (MBB), iShares S&P National AMT-Free Muni Bd (MUB), SPDR Barclays High Yield Bond (JNK), and Vanguard REIT Index ETF (VNQ) all pushed towards yearly highs as global rates fell.

AGG Chart
AGG data by YCharts

From Japan to the U.S., no country came away unscathed. Japan released preliminary economic growth numbers on Wednesday showing a contraction of 1.7% from April to June on a quarter-on-quarter basis. The news ensures that Japanese stimulus will remain in place for years to come.

Must Read: Warren Buffett’s Top 10 Dividend Stocks

In Europe, weak German data pushed the yield on German 10-year government bonds, also known as bunds, below 1% to as low as 0.99%, an all-time low. Similarly, the German ZEW Economic Sentiment Index, which measures the level of optimism about the current economic situation, gave a reading of 8.6 in August, down from 27.1 in July.

Lower optimism in Germany came with an inflation rate that fell below 1% for the country, and second-quarter growth reports showing an advance of only 0.8%, against estimates of a 1.5% advance in the quarter. Weakness in Europe’s largest, most stable economy made further stimulus by the European Central Bank almost unavoidable.

In the U.S. retail sales were flat in July after increasing 0.2% in June. Sales at auto dealers continued to fall and receipts in furniture, electronics and appliances stores weakened. Retail sales, alongside an unexpected increase in jobless claims the following day led analysts to question whether the level of global economic weakness would mean lower interest rates for a longer period of time.

The benefit of global weakness is U.S. assets remain the most attractive asset class on the planet. Both U.S. Treasury bonds and PowerShares DB US Dollar Index Bullish (UUP) continue to trend higher as investors are fearful of investing in countries with declining economic landscapes. While the U.S. has seen some weakness, its overall trend of economic recovery remains gradually higher.

With geopolitical risks falling and interest rates remaining low, the benefits of quantitative easing have not yet been removed from the markets, allowing U.S. equities to continue moving higher. Expect the S&P 500 to reach 2000 in the next few weeks, being led higher by sectors such as First Trust Dow Jones Internet Index (FDN) and iShares Nasdaq Biotechnology (IBB).

TLT Chart
TLT data by YCharts

At the time of publication, the author held no positions in any of the stocks mentioned, although positions may change at any time.

Follow @macroinsights

This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Real Money

More than 30 investing pros with skin in the game give you actionable insight and investment ideas.

Product Features:
  • Access to Jim Cramer's daily blog
  • Intraday commentary and news
  • Real-time trading forums
Only $49.95
14-Days Free
14-Days Free
AAPL $95.03 0.21%
FB $116.73 0.00%
GOOG $691.02 0.00%
TSLA $247.54 -0.07%
YHOO $36.59 0.00%


Chart of I:DJI
DOW 17,830.76 -210.79 -1.17%
S&P 500 2,075.81 -19.34 -0.92%
NASDAQ 4,805.2910 -57.85 -1.19%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs