European Bonds Hit With Steepest Decline in Eight Years

Interest rates around the world (with the exception of the U.S.) continue to rise. The European Central Bank rate looks like it is set to raise interest rates again. The Bank of England keeps moving rates higher. New Zealand interest rates are about the highest. Even the Bank of Canada is expecting to jump in and start raising interest rates.

The consensus thinking has inflation becoming a problem worldwide. Hence, world bankers are raising interest rates in an effort to stem inflation. The last thing anyone wants is the rapid inflation of the late 1970s.

Hence, bonds may not be the best investment at this time. (Bonds fall in value when interest rates rise.) Even in the U.S., where the Fed is “holding pat” with interest rates, the risk is too high that interest rates may rise, pushing bonds prices down. Short-term T- bills might just be a better alternative for investors these days.

As far as inflation goes, I keep my eye on gold bullion prices. The higher gold prices move, the more likely inflation is a real threat. With gold moving in a sideways pattern for the past 12 months, it will be very interesting to see if gold’s price action in the weeks ahead confirms the inflation fears of world bankers.

Here in the U.S., we need to remember housing prices are deflating rapidly. Of all the property markets I follow, the U.S. housing market is getting harder hit than any of the industrialized nations. Can inflation rise rapidly when house prices are deflating quickly? I think not. Hence, the U.S. can continue to enjoy more stable interest rates… at least for now.

NEWSFLASH – The number of loans for mortgages in the U.S. entering the foreclosure process reached a record 37-year high in the first quarter of this year, according to the Mortgage Bankers Association. The aftermath of the real estate and subprime loan bust continues to haunt many Americans.