2014

Three Phases of Interest Rate Normalization Expected Over Next Five Years, Says BNY Mellon's Chief Economist Richard Hoey Interest Rates Returning to an "Old Normal" Cyclical Pattern

NEW YORK and LONDON, Sept. 17, 2013 /PRNewswire/ -- A gradual interest rate normalization is expected to occur during a prolonged multi-year economic expansion, according to BNY Mellon Chief Economist Richard Hoey as outlined in his most recent  Special Report  entitled, "Interest Rate Normalization."

"The aftermath of the three-decade-long decline in interest rates is likely to be labeled a long-term secular bond bear market, but we prefer to view it in the context of the cyclical normalization of interest rates that we expect over a half-decade period, a return to a 'secular neutral' center-of-gravity for interest rates," Hoey said. 

Overall, Hoey expects a three-phase normalization of bond yields over a half-decade period:

(1) a sudden rise from artificially depressed bond yields to free-market yields (most, if not all, of which has already occurred);

(2) a prolonged gradual upward drift over the next two years in response to normal cyclical forces; and

(3) a late spike in interest rates when Fed policy turns restrictive following seven years of economic expansion. 

"With QE3, the Fed has held down bond yields like a beach ball held below the surface of the water," Hoey concluded.  "Once it indicated that it might let go of quantitative easing, that beach ball jumped quickly to the surface, with the bond yield rising to its free-market level.  From now on, however, if our economic forecast is correct, there should be a slower rise in bond yields as a gradually rising cyclical tide lifts the free-market level of bond yields.  The recent rapid rise in bond yields made fundamental sense as the markets discounted the end of an artificial bond scarcity, but it is likely to be followed by a much more gradual upward drift over roughly the next two years as cyclical fundamentals evolve." 

See http://www.bnymellon.com/foresight/pdf/interest-rates-0913.pdf for Hoey's complete Interest Rate Normalization Special Report. 

Notes to Editors:

BNY Mellon Investment Management is one of the world's leading investment management organizations and one of the top U.S. wealth managers, with $1.4 trillion in assets under management. It encompasses BNY Mellon's affiliated investment management firms, wealth management services and global distribution companies. More information can be found at www.bnymellon.com.

BNY Mellon is a global investments company dedicated to helping its clients manage and service their financial assets throughout the investment lifecycle. Whether providing financial services for institutions, corporations or individual investors, BNY Mellon delivers informed investment management and investment services in 35 countries and more than 100 markets. As of June 30, 2013, BNY Mellon had $26.2 trillion in assets under custody and/or administration, and $1.4 trillion in assets under management. BNY Mellon can act as a single point of contact for clients looking to create, trade, hold, manage, service, distribute or restructure investments. BNY Mellon is the corporate brand of The Bank of New York Mellon Corporation (NYSE: BK). Additional information is available on www.bnymellon.com, or follow us on Twitter @BNYMellon.

All information source BNY Mellon as of June 30, 2013. This press release is qualified for issuance in the UK and US and is for information purposes only. It does not constitute an offer or solicitation of securities or investment services or an endorsement thereof in any jurisdiction or in any circumstance in which such offer or solicitation is unlawful or not authorized. This press release is issued by BNY Mellon Investment Management (US) and BNY Mellon Asset Management International Limited (ex-US) to members of the financial press and media and the information contained herein should not be construed as investment advice. Past performance is not a guide to future performance.  The value of investments and the income from them is not guaranteed and can fall as well as rise due to stock market and currency movements.  When you sell your investment you may get back less than you originally invested. Registered office of BNY Mellon Asset Management International Limited: BNY Mellon Centre, 160 Queen Victoria Street, London, EC4V 4LA. Registered in England no. 1118580. Authorized and regulated by the Financial Conduct Authority. A BNY Mellon Company.

SOURCE BNY Mellon



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