When the governments and banks of the majority of the global economy are offering negative interest rates for their bonds and still receiving investors, it is little wonder that capital is flowing into United States Treasuries. That movement of money originates both in the European Union and China as people flee the turmoil that is occurring in those two economies.
The result of more money seeking U.S. Treasuries than the supply of Treasuries is that our interest rates have plummeted. Ignore the conversation about inverted yield curves and just simply focus on what is happening with 10-year treasury interest rates. This year they have dropped from over 3% to approximately 1.5% as of the end of August.
This is putting pressure on the Federal Reserve (The Fed) to drop their discount rate so as not to appear to be creating a recession. Lower interest rates tend to encourage increased real estate values.
One of the economists I have enjoyed reading, Dr. Kindelberger, stated that anytime an asset doubles in a year it is a bubble. Ten year Treasuries moving from more than 3% per year down to 1.5% is sort of the inverse of doubling. My concern is that we are looking at a bubble.
Our advice to our clients is to focus on the interest rate trends and see this as an opportunity to sell whatever tracts of land they want to sell because we are somewhere around the peak of this real estate cycle.