I like this chart from ValueWalk showing the correlation between interest rates and growth. We often hear about how the bond market is a good forecaster of future economic growth. I usually describe the structure of interest rates as being a function of the way that traders view the way the Fed sees policy. In other words, bond traders are always trying to front-run the Fed. And the Fed is always trying to front-run the economy.
One of the more common concerns in this market environment is the concern about interest rates and the likelihood of a big move higher. But as the following chart shows, if you’re worried about rates you really should be worried about growth. After all, if the Fed is watching the economy then higher rates aren’t likely to transpire without much stronger growth.
Mr. Roche is the Founder and Chief Investment Officer of Discipline Funds.Discipline Funds is a low fee financial advisory firm with a focus on helping people be more disciplined with their finances.
He is also the author of Pragmatic Capitalism: What Every Investor Needs to Understand About Money and Finance, Understanding the Modern Monetary System and Understanding Modern Portfolio Construction.