Global rates are rising
World economies are likely to hike interest rates by the end of the year. Here's when to expect the changes.
Here's an interest rate calendar for the economies of the developed world that you can put up on your office wall -- but it is subject to revision. (I know it's shocking, but markets do get this stuff wrong from time to time.)
Right now, the futures markets are priced for expectations that the United Kingdom will start raising short-term interest rates, now at a low 0.5%, in June. By the end of 2011, the markets say, the Bank of England will have raised short-term rates to 1.25%.
The European Central Bank will go next with its first rate increase expected in September. Short-term rates, now at 1.0%, will be at 1.5% by the end of 2011.
Last up will be the United States, which the markets now say won't move until December. The Fed funds rate, now at an effective 0.13%, will climb to 0.5% by the end of 2011. The driver in all this isn't a rapid rise in inflation expectations, but expectations for a gradual return to normal economic times.
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Of these three major developed economies, bond investors are now expecting only the United Kingdom to show a higher inflation rate over the next 10 years than they were expecting a year ago.
According to the Financial Times, calculating from the difference in yields paid by inflation-protected bonds such as U.S. TIPS and conventional bonds, markets project that expectations for the annual rate of inflation in the United Kingdom over the next 10 years -- got what we're measuring here? -- have gone from expectations for a 2.9% average annual rate for the next ten-year period in January 2010 to expectations for a 3.3% rate now.
The comparable figures for Germany are expectations for an average 2.0% inflation rate over the next 10 years in January 2010 to -- big surprise here -- 2.0% now. In other words, no change in expectations for German inflation.
In the U.S., expectations in January 2010 were for an average rate of 2.4% and now for a 2.3% inflation rate.
At the time of this writing, Jim Jubak didn't own shares of any companies mentioned in this post in personal portfolios. The mutual fund he manages, Jubak Global Equity Fund (JUBAX), may or may not own positions in any stock mentioned. For a full list of the stocks in the fund as of the end of the most recent quarter, see the fund's portfolio here.
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