Perspective matters for percentage rates.
For one rate worth watching in the week ahead, a low percent signals concern. For the other, a low rate should be a sign of confidence.
With the stock market swooning, investors have been buying government bonds. The rally in bond prices pushes down the interest rate paid on those bonds. People tend to buy government bonds in bulk when they are worried. And if the interest rates on government IOUs are any indication, investors are nervous and growing more so.
Last week, the interest rate on the benchmark government 10-year bond fell to its lowest level in almost two years — just 2.2 percent. Interest rates are higher for shorter-term bonds. This is what’s referred to as an inverted yield curve. Usually the longer a lending period is for a bond the higher the interest rate. But that’s not the case now. This is a rare occurrence and it has portended a poor economy in the past. Investors are closely watching bond interest rates as a signal of market worries.
Meantime, the unemployment rate was at a half-century low in April, at 3.6 percent, and may go lower. The May jobs report will be released on Friday. The low jobless rate should give investors confidence in consumer spending and economic growth. Instead, it can be portrayed as a symptom of structural problems such as a skills mismatch between job seekers and employment opportunities, a lower workforce participation rate, or stubbornly low wages.
A low rate — either bond rate or unemployment rate — shouldn’t be isolated as an indicator for investors. But both of them falling to notable lows is noteworthy for its economic and market dissonance.
Tom Hudson hosts “The Sunshine Economy” on WLRN-FM, where he is the vice president of news. Twitter: @HudsonsView